The US indices market enjoyed quite a green week as the they recovered following the Fed’s Interest Rate Decision on the 16th of June. The Dow Jones, NASDAQ and S&P closed +3.44%, +2.35% and +2.74% respectively.
Last week’s theme was mainly the results of the Core PCE (The Fed’s preferable measure of inflation) which came in at 3.4%. This is the highest level seen since 1992 as raw materials and labour costs surged on the back of pent-up demand for goods and services. This data figure could result in investors pricing in full confidence of a rate hike as early as next year.
This week, traders will be eyeing NFP data on Friday as it looks to spark some volume in the market as well as provide some insight on the taper talk taking place within the Fed. Forecasts are expecting 700k jobs to be added. Average hourly earnings are also expected to rise from 2% to 3.6% Y.O.Y. A strong outcome in the latter could bring forward Fed tapering bets. Thursday also brings Initial Jobless Claims as well as ISM Manufacturing PMI which will continue to help investors gauge the progress of employment within the economy as well as supply and demand.
An interesting theme to keep an eye on is that of value stocks (Dow Jones) losing their shine as Treasury Yields continue to slide lower. Earlier this year, rising yields were against Tech stocks with stretched evaluations, but this seems to have flipped again in favour of the tech sector which could leave the Dow susceptible to weakness in the weeks ahead. Looking at the 10 Year Treasury Yield, the 1.6% handle looks like it will provide insight into where the curve could be heading going forward.
Looking at NASDAQ technically, we saw a slight pullback in the tech sector due to Tesla announcing a recall of 285k vehicles in China due to safety issues concerning its driving software. Other than that, NASDAQ has continued its grind upwards eventually creating a high around the $14 435 region last week. Pullbacks in the tech-heavy index are bound to take place after the bullish week we saw last week. Should the current high hold, the first point of interest is around the $14 200 region which is the 50% Fibonacci retracement level in line with an area of resistance turned potential support. Further pullbacks into the psychological level of $14 000 will bring the 78.6% fib retracement level into play as well as the ascending trendline stemming from lows printed throughout June. Bullish reversals around these regions could provide high risk to reward positions targeting the $14 550 region. Any break and closure below the Prior Week Low would invalidate this bullish momentum.
The Dow is at a very interesting level of price action. Price has slowly climbed into the descending trendline stemming from highs created in May and June respectively. At the time of writing, price is trading around the 78.6% Fibonacci retracement level. Bearish reversals around this region could open up the door for further downside on the Dow targeting $32 550 potentially. Be weary of manipulation spikes into the $34 750/34 650 region. A break above the previous high around $34 850 would invalidate this setup and would most likely lead to new highs being seen on the Dow.
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.