NDX bounced off of the channel trendline after losing buyer support at new ATH's posted after its breakout and subsequent 9.5% leg higher in just as many trading days.
This last leg down was over a .786 retrace, and the bulls pulled it back from the brink and tacked on a 4% and almost exactly a 50% retrace from Thursday's overnight lows and it seems like old habits die hard.
Since February the tech/growth over alles narrative has seen a real challenger in the form of interest rates. The bond market, usually boring and geriatric turned exciting again as traders were pricing in a faster than expected rise in interest rates due to inflation rising faster than the Fed is projecting. Our last correction, just two months ago, culminated with the 10 year yield going parabolic, one day printing a 1% loss in /ZN, or the 10 year bond price. We're currently at sitting at around the 1.6 handle in the 10 year.
Over the past two weeks interest rates and markets themselves have been whipsawed by economic data. With a massive miss in the April jobs report, only to be followed up by an unexpected drop in manufacturing data, and then that was followed up by a historic 4.1% rise in core CPI, a number in which we haven't seen since 2011. And that was followed up by disappointing retail sales numbers.
The counter narrative to what we've been seen as NDX supremacy is that with higher interest rates it does not justify paying such high P/E multiples to own some of these growth and tech stocks. The average dividend in the S&P is 2%. If you can get over 2% out of holding a US government bond, that in theory is risk free, why would you hold equity of a company that inherently is more risky?
The interest rate and inflation snowball has started to roll down hill, with last week's CPI number being the confirmation. And in my opinion, will only gain momentum. This will be a weight on the NDX and the companies that populate it. With names like AAPL, TSLA, GOOGL, AMZN, NFLX, and MSFT taking the brunt of it.
Technically we held the line. But, with a rising trendline across the previous two highs and the rising uptrend channel trendline, we are creating a rising wedge that suggests we could see another new high before we pivot, and come back in to retest the bottom of the channel once more. If we were to break that channel trendline, it would also be breaking down out of the falling wedge. The implied move for the rising wedge is just over 12%. This would also be a break below the breakout area and probable support at 12388 and back into the decade long channel we busted out of earlier last summer. This is also backed up with both the weekly and daily MACD's still in a downtrend and also RSI, which has failed to make a new high since last August. The daily MACD actually went negative on the 11th.
This is purely my theory, and my technical analysis on the index. I have been and and do expect a trend termination, but these old habits of buying the dip die hard, and are essentially compulsory at this point. I honestly do think the bed has been made so to speak, the bulls are going to have to sleep in it eventually.
Chart with indicators
This is not trading advice. This is my own personal opinion and technical analysis. I am not a financial advisor and you are responsible for your own trades.
Comment:
Looks like this may have been closer to home than previously thought. We're now less than a % point away from that top trendline, we'll see what the market wants to do with it.
