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Nasdaq Analysis

13k’s gravitational effect on the Nasdaq

13000 on the Nasdaq is a really big magnet currently with 13150 the ceiling and 12900 the next potential level of resting liquidity. 14000 will be the rallying call should we break higher out of this trading range.

For the entire 2021 trading range, 13000 has been the pivot and after the big fall from the mid-February highs to the March 2021 swing lows the trading has been very choppy. Traders who keep an eye on the 200 daily ema will feel that this is a bull market corrective period, whereas the longer-term traders using a daily Ichimoku indicator will be looking at the cloud as resistance now and with that could be expecting prices to fall further in the coming months.

The much widely publicised steepening of the yield curve in the fixed income markets and with yields trading above 1.0% on the US 10-year treasury, it has become evident these tech stocks that did so well in a low inflationary environment, and themselves were partly the cause of global deflation, will probably not do so well in an inflationary market. The Fed is keen to point out that inflation problems currently in the market should be viewed as transitory, so when the 2020 March/April data rolls out of the year-on-year data we should see whether or not the Fed then show any further concerns.

The top 6 companies within the Nasdaq100 make up around 40% of the weighting of the index. Apple Inc is the largest with 11% followed by Microsoft which has 9.6% of the share.

The others in order of weighting size are Amazon, Tesla, Facebook and Google.

Apple and Microsoft have massive sway over which way the Nasdaq trades and together when they move in unison, they are a great proxy for which way the day’s trading will be on the tech index. AAPL has been trading under its 2021 opening price since the end of February but the MSFT chart shows that there is still bullishness in these behemoth tech companies. I would be super bearish the tech sector if both of these companies were to trade under their 2021 open price level so for now, the outlook is mixed, with the bias towards the upside as tech is a massive part of our lives, especially after the coronavirus pandemic locked us indoors 24/7.

Looking around the rest of the US equities markets, the Nasdaq is up 2% over the last 3 months but lags the S&P500 which is up by 6.13%, and the Dow Jones Industrial Average which is up 8.30%. So, the Nasdaq, if it were to follow its peer group higher would be the index one would think to have the most to gain relative to the last 3 months performance.

Momentum generally leads price, so again the bigger picture uptrend is still the way to view the index.

Trading the UsaTec is not easy if you chop and change between time frames. Intraday traders do well trading the ranges and get the benefit of an occasional trend day, whereas the trend-following traders can sit in a 10-year bull market and buy the dip on the erratic sell-offs. However, going into the market with a macro view and then trying to apply it to an intraday range can get very frustrating.

The algos will seek out every resting limit order and wait for buyers and sellers to come in around the psychological levels e.g. 00 or 50 and then quickly reprice depending on the supply or demand at those levels. If you do look to trade intraday the best bit of advice I have been given so far is to wait for an hour of trading after the US futures open to complete and then mark up the high and the low of that initial balance range (IBR). Trading inside that IBR means that VWAP is important, outside of that range and you can start to consider trend-following techniques. Also, the 3rd Friday of each month is a major options expiry day, so that can get very erratic, and the moves make little sense if you are unaware of where the big options are set to expire on the NDX.

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