If you were away from your trading station last week, you did not miss much as we saw last week provide some of the tightest trading ranges in the market post-pandemic with the Dow Jones, Nasdaq and S&P500 closing -1%, +1.6% and +0.34% respectively for the week.
Last week also saw the US 10 Year Treasury Yields falling below and properly clearing the 1.5% region for the first time since the initial pump during March. A simple definition of Treasury Yields is the return on investment on the U.S government’s debt obligations. It is expressed as a percentage. Treasury Yields affect the interest rates that individuals and businesses pay for various goods and services. Treasury Yields also tell us how investors feel about the economy. Since yields have declined, the stock market has climbed since the returns appear more profitable in current market conditions. Investors will be looking at this drop in yields as a potential calming method to potential tapering of Fed stimulus.
With the drop in the 10 Year Yields, we also saw a decline in VIX (Fear Gauge) which suggests that market sentiment is positive since there is less fear in the market. This still leaves the market vulnerable to risk events. Tuesday brings us Retail Sales as well PPI as investors continue to gauge at the rate of economic growth within the US. Everyone has their eyes set on Wednesday as we see the US Interest Rate Decision as well as FOMC Statements being made. This will provide us with much needed insight from the Fed on the Central Bank’s planned policy path and might help settle the taper tantrum and transitionary inflation debate once and for all. Then lastly Thursday brings us Initial Jobless Claims which will show us if the US job market continues to recover post-pandemic.
Technically, the NASDAQ is trading near current All Time Highs as we saw bullish momentum last week following the decline in US 10 Year Yields. With price being bullish, the simple plan of action is to wait for the next Higher Low (HL) to be printed to execute potential Long positions. Key areas to keep an eye on is the $13 900 region which is a liquidity zone stemming from highs created in February 2021 as well as the ascending trendline plotted from lows created in May and June respectively. A clear break and retest of the All Time High could however open up the door for even further upside.
The Dow has been trading in quite a tight range for the past week suggesting the Summer Doldrums might be starting early as volume and volatility continues to dry up. At the time of writing, price is currently trading around the psychological level of $34 500. This week’s main area of importance will be within the liquidity region of $34 450. If we look left we can see price has moved rapidly when it has previously come into this region. Should $34 450 hold as support, this could open up room for bullish momentum on the Dow taking us into the descending trendline which could act as dynamic resistance. A break below $34 450 will change our bias to downside with our first target being in the $33 000 region.
As always traders, we hope you have a fantastic trading week ahead & always exercise healthy risk management. For more updates like the one above, subscribe to our blog for instant updates to your mail.