I attempted this morning to set up TradingView to show Friday’s MNQU23 trade, but I need to get used to the chart frame format before doing that, so today’s writing will basically follow up on the video.
If you want to see the most important part of the video, go to 4:40 to see the new daily bullish target. This assumes that volume will continue to accelerate as it has in previous weeks. The bullish spreads in price and volume have faded again since last week, but it appears Friday was a solid day for buyers and the bullish price spread seems ready perhaps to advance.
The earlier portion of the video basically shows that we have not taken out the high of 15475.50 from a couple of weeks back, and as such could still create a complex pivot high that marks a potential end to the bullish rally that began at the beginning of 2023.
What we have is a mixed bag of economic news on all fronts. I am going to draw data primarily from Daily Chartbook for June 30. There are key points that show what a mixed bag we are dealing with in terms of future economics. I think, other than for summer doldrums which affect NQ seasonality, give some institutions and investors pause about being long these markets (particularly technology).
From the long-range perspective, at least until 2025, take a look at this chart:
Let’s look at Bank of America’s projection of VIX if Fed funds rates continue to progress to target, roughly 5.5%:
What that is telling you is that there will be increasing pressure on stock prices until some time in 2025 if rates continue to rise (which for now is current Fed policy).
The other thing that is a bit scary is this:
This is a chart of retail (individual investor) purchases of common stock. There is only one issue with this (which is buried somewhere in VandaTrack’s research). The vast majority of it is TESLA. There does seem to be a magnetism for retail investors to chase the hot names in technology, and the meme stocks of the day. What happens if there is a panic (and those are the only components of NQ that have outperformed in the rally)? That is a key question moving forward which gives rise to the research provided by Bank of America regarding VIX.
The point is though, it is still anyone’s guess as to how markets will progress given Fed policy and economic performance.
In terms of price momentum, the NASDAQ has had its smallest 1st half drawdown since 2017:
Most of the economic data in that link above shows wages rising slightly, consumer sentiment bottoming out, and spending perhaps exceeding income slightly as we push through 2023.
Valuations on tech stocks are also stretched, as you can see by the bar on the left side of this chart:
As you can see, consumer discretionary and information/tech stocks are at the high end of valuations historically. Will there be a cooling-off point? We will have to see what Fed policy will allow as time progresses.
The issues of commercial real estate, unlimited Congressional spending (even to ‘covidiocy’ levels of 2021), and a Fed still ready to print the cash to buy will overhang these markets for at least another 18 months.
One of the reasons I trade futures is that I can be long or short at any time without having to borrow money ( using leverage of course ) and being able to make those direction adjustments the markets move in any direction. I do not worry about value (as, as I have stated before of late, market valuations in tech are still insane). I just worry about the direction the market is headed in and I set rational targets to take profits from. As long as I protect equity with stops, I can continue to profit.
As time goes on, I will write more about both the good and bad aspects of the economy and their effects on NQ and other markets. We are still perhaps at a bit of a dicey inflection point in market history, but I am ready to trade it in either direction and will continue to monitor the situation.
I hope everyone in Canada had a fantastic Canada Day, and I wish everyone in the USA and US military around the world a happy 4th of July! Have a great week next week folks!
