We move on from a week where strong momentum markets (AI names, Nasdaq 100, Nikkei 225 and, Mexican peso) were sold down hard, with traders better buyers of the VIX, Dow Jones 30, Gold, CHF, USD, and defensive equities (utilities).
Earning season: Dow Jones long, Nasdaq short?
Notably, the Nasdaq 100 recorded its worst week since November 2022, driven in part by market players part-liquidating an incredibly extended position in Nvidia NASDAQ:NVDA, with 87m shares traded on Friday alone. Tesla NASDAQ:TSLA and Super Micro Computers NASDAQ:SMCI also seeing steep declines on the week, with Tesla remaining front and centre with Q124 earnings due after-market on Tuesday. Many ask whether we see a fifth consecutive quarter where shares closed lower on the day of reporting?
Long Dow Jones 30 / short Nasdaq 100 positions have worked well and remain a tactical play I like into the new week, although with so many heavyweight tech names reporting through the week, Nasdaq 100 shorts will watch the reaction to earnings closely and will be prepared to react if the market likes what they see from the respective outlooks.
While sentiment has turned more negative, there is absolutely no panic at all and I’d see if the buyer’s step in and support the S&P 500 a little lower into 4935. That said, the price action and technical set-up suggests selling rallies in the S&P 500 and Nasdaq 100 is the play. If one is compelled to ‘buy dips’, then waiting for the rip after early traders buy the dip seems the higher probability play.
Traders focused on Middle East headlines
Geopolitical headlines remain fluid and have been a key reason for keeping buyers of risk at bay. Many will remain focused on these developments as we roll into the new week. The news flow was certainly a key reason why Gold closed higher for a fifth straight week and at a new all-time closing high on Friday, as it was why the CHF was the star currency on the week.
That said, with Brent crude closing the week 3.1% lower, one could argue it was the move higher in US bond yields, with the US 10yr Treasury pushing above 4.6%, that was really the big kicker that promoted rotation out of tech/AI names and supported the USD.
Short GBPUSD and long USDMXN on any retracement remains a compelling trade on my radar.
- Armchair Academy: Introduction to Equity Sector Futures
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- A high-stakes week for traders in global markets
Macro-economic data to watch for
Watch US PCE inflation on Friday as the marquee risk on the data front. For a playbook, we could see outsized market moves on a US core PCE print above 0.4% m/m (USD up, Gold, Nasdaq 100 down) or below 0.25% m/m (USD down, Nasdaq 100 and Gold higher). A read above 0.4% m/m and the idea of a cut before the US Presidential election would be further dialled back.
There will be a focus on the Bank of Japan (BoJ) meeting, but it is too soon for them to alter policy, and the market gives a change in rates no chance at all. If we get a move in the JPY, it will likely come from any changes to the bank’s inflation forecasts and the post-meeting conference call. We remain on JPY intervention watch, and signs that we are getting closer to the point where Japanese authorities look to step up the fight against JPY’s weakness.
PMIs are due in the UK, EU, and US and they could move markets, notably if the service’s PMI outcome misses/beats expectations by a wide margin. Australia Q1 CPI poses a risk to AUD exposures, although, with such little priced into Aussie interest rate futures, it would need to big surprise to have a lasting effect on AUD pairs.
Bitcoin moves past the highly anticipated halving and while we predictably didn’t get any kneejerk reaction in price, the set-up on the higher timeframes is starting to look more compelling from the long side. There was clear support from the market to buy on the move below $60k and this is a level many are guiding for stops on longs. An upside break of $66k could be the trigger for a push into the top of the range of $72k.
Good luck all.
