Nasdaq: Technical overview shifts ahead of a key fundamental event

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Tech sector faces setback

There was mixed performance among the eleven sectors yesterday, with most in the red and energy leading the minority in the green. The losses were driven by the tech, communication, and consumer discretionary sectors. This combination is precisely what the tech-heavy Nasdaq 100 index fears, as it led to underperformance against both the Dow 30 and the S&P 500 for the session.

Awaiting CPI data

There was limited economic data released from the US, with a bit of housing data showing through the weekly mortgage applications from MBA, indicating a decline of 3.1%. However, the focus remains on the upcoming release of the Consumer Price Index (CPI) for July. Forecasts suggest a rise in its year-on-year reading from 3% to 3.3%, while the core print is expected to remain steady.

Additionally, the weekly claims data and Federal Reserve (Fed) member speeches will be noted. Looking to tomorrow, more pricing data will come with producer prices and preliminary figures from the University of Michigan (UoM) for consumer inflation expectations.

Another day, another bond auction

Treasury yields displayed a mixed finish for the session, with lower yields observed on the further end but higher ones in the middle. Notably, the 10-year auction demonstrated decent demand. Market pricing (Refinitiv) has seen little change once again, though potential shifts can be anticipated based on today's US CPI readings. Later today, the 30-year bond auction will also take place.

Nasdaq technical analysis, overview, strategies, and levels

The recent underperformance of the Nasdaq led to prices dipping below its previous 1st Support level. While this crucial level managed to hold eventually, there were instances of stop-outs, even for those cautiously adhering to the strategy of buying after significant reversals, within the context of the prior 'bull average' overview.

This overview has now transformed on the daily time frame into a 'cautious consolidation', indicating a shift, with contrarian strategies possibly gaining traction if volatility increases. Such volatility might emerge soon, particularly considering the fundamental Consumer Price Index (CPI) event today. The extent to which the final CPI figures diverge from forecasts will dictate the scale of potential volatility.

In the weekly time frame, the technical overview points to a 'bull trend' that is currently stalling. However, a significant pullback would be needed to erase the positive longer-term technical bias.

IG client* and CoT** sentiment for the Nasdaq

Regarding sentiment among retail traders, there has been a significant decrease in the prevailing majority sell bias. The decline in price has prompted new short positions to close out and led to the initiation of long positions. The current sentiment stands at a slight sell bias of 52%, and a slight change would shift it to a majority buy sentiment.

On the other hand, as per the most recent CoT report from last Friday, speculators are still primarily positioned in the short territory. However, they are not significantly far from the middle ground.

Nasdaq chart with retail and institutional sentiment

• _{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.}
• _{**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.}