Last Friday the NFP report surprised everyone with a 517K gain vs. 185K expected. The number was much higher than even the most optimistic forecasts.
Last Friday the NFP
report surprised everyone with a 517K gain vs. 185K expected. The number was
much higher than even the most optimistic forecasts. The unemployment rate fell
to 3.4%, the lowest in 53 years. This brought back fears of a possible
reacceleration in inflation as the labour market is still extremely tight and
wages may start to rise again.
The Fed is trying to get
inflation back to its 2% target and it’s hard to envision such a scenario with
a labour market this strong. Inflation may get to 3% or 4%, which would be a
failure for the Fed and if too much time passes by, people may start to change
their expectations around the 2% inflation, which would make the Fed’s job even
harder.
The ISM
Services PMI report also showed a reacceleration in economic
activity for the Services sector as the data made a big jump back into
expansionary territory. If the market had doubts on the Fed’s willing to hike
to 5.00-5.25% and stay there for longer, the last week should have cleared
those doubts.
Nasdaq Composite Technical Analysis
On the daily chart above, we can
see that the price after breaking out of the 10200-11500 range, rallied towards
the next resistance at 12274 where it got rejected
after the blockbuster NFP report. Given the new uncertainties on the monetary
policy side, we can expect a pullback before another push higher.
On the 4 hour chart above, we can
see that the blue upward trendline is now the support for the
current uptrend.
If the price falls below the
trendline and the previous resistance now turned support, the bears will regain control
and target the lower band of the previous range at 10200. For the bulls a break
above the 12274 resistance is needed to target the next resistance at 13191.
Drilling down to the 1 hour chart
above, we can see the possible scenarios. From a risk management perspective,
the bulls should wait for the price to retrace back to the trendline where
there is also support from the previous swing high and a 61.8% Fibonacci
retracement level.
The risk would be well defined.
In case the price breaks down the trendline and the previous resistance turned
support at 11500, it would open up opportunities for the bears to target the
next support at 10200.
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