Chart Of The Day: NASDAQ Enters Key Resistance Area
2022.06.03 15:31
Following Thursday’s rally, the NASDAQ 100 wiped out the losses it had suffered in the previous couple of sessions to put it on track for a positive weekly close. But will the bulls hold their nerve, or will the bears step in now that the major indices have reached key resistance levels?
Thursday’s rally means the NASDAQ printed a bullish engulfing candle on the daily chart as dip buyers stepped in to defend key support at around 12500. However, we have seen such setups fail in the past in this bear market on many occasions. I wouldn’t bet against it doing the same again this time, given that fundamentally not a lot has changed.
In fact, the NASDAQ has now entered a potentially strong resistance zone between 12880 to 13025 (shaded on the chart).
NASDAQ 100 Futures Daily
This 12880-13025 area was formerly support, before the bears cracked it in early May.
While aggressive traders may start dipping their toes in here blindly, the fact that we have arrived at this resistance area with that bullish engulfing candle, I would first look for some bearish price action on the lower time frames to confirm the top is in place before looking for short setups. I would look for signs of a bull trap, such as a failed rally on the 5/15 min chart, etc.
Meanwhile, today’s US jobs report is unlikely to matter too much in so far as the Fed’s policy is concerned, and by extension the markets. Another 50-basis point hike is already priced in for June and this probably won’t change, even if we see a massive disappointment in the employment report. The only aspect of the jobs report that will probably matter more is earnings. The average hourly earnings index is expected to print 5.2% on a year-over-year basis. Anything beyond that could jar the Fed into a more-hawkish stance.
It is worth pointing out that bond yields, including on the 10-year note. have been creeping higher again of late, which may once again weigh on stocks—especially If they continue higher. Rising bond yields reduce the appeal of stocks that pay low dividends.
