The Dow Jones, NASDAQ and S&P500 closed the week at -3.45%, +0.37% and -1.91% respectively, as we saw a large influx of volatility due to the Fed bringing forward their interest rate hike projections.
Last week Wednesday brought traders the US Interest Rate Decision in which the Fed laid out their plan of two rate hikes by the end of 2023, which was more hawkish than expected and in turn led to huge strength in the DXY. The Dow and S&P retreated on Friday on the back of St. Louis Fed President, James Bullard, making comments which raised more fear about Fed rate hikes.
The 10 Year Yields flattened as well showing us the retreat in reflation bets as traders are trying to price in the possibility of a rate hike in 2022. After a spike into the 1.6% region following the interest rate decision, Yields have fallen back into the 1.4% region for the first time since March 2021. Should bearish price action continue on Yields, we could see the rotation out of blue chip companies and back into tech i.e NASDAQ.
In terms of risk events this week, the two main events everyone will be focusing on mainly is Core PCE on Friday (This is the Fed’s preferred gauge of inflation) as well as Jerome Powell’s speech on Tuesday. These two events have the potential to sway the threat of Fed tapering. Thursday also brings us Initial Jobless Claims which will help traders keep track of job recovery within the economy.
Technically, NASDAQ is still printing bullish price action as it continues to keep printing new highs. With price being bullish, the bias remains with long positions until a break of structure presents itself. For the week going forward, immediate areas of potential support comes in the form of our Fibonacci retracement zones. Specifically the 78.6% which lines up with a liquidity zone stemming from highs created in February as well as the ascending trendline line which could also offer a form of dynamic support. Breaks below the Prior Week Low would invalidate our setups as this would be a break of structure.
As mentioned in last week’s blog, $34 450 was an important area for the Dow Jones. A break below signaled potential downside on the blue chip index. With the flattening of the Yield curve sending tech stocks higher, we saw the inverse on the Dow as price collapsed around 14 000 pips over the course of last week. Currently, NASDAQ and the Dow having its strongest inverse correlation since June 2017. With price being in a bearish market structure, the bias going forward will be shorts as we wait for pullbacks in price to potentially go lower. At Aspire, we will be sitting on our hands until price reaches the psychological level of $34 000 again to sport potential reversals.
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.