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Chart Of The Day: Will The Nasdaq 100 Continue To 10,000?

By Pinchas Cohen/Investing.comStock MarketsAug 08, 2022 11:59AM ET
www.investing.com/analysis/chart-of-the-day-will-the-nasdaq-100-continue-to-10000-200628200
Chart Of The Day: Will The Nasdaq 100 Continue To 10,000?
By Pinchas Cohen/Investing.com   |  Aug 08, 2022 11:59AM ET
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NDX
-1.73%
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US10Y...
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US futures and European stocks were in the green, as positive earnings and a dovish interpretation of Federal Reserve rhetoric reassured investors.

Moreover, easing yields buttressed the argument of a pivoting Fed. Presumably, if investors expected continuously higher rates, they'd sell Treasuries, pushing yields higher, as they await higher-yielding Treasuries.

However, in my opinion, while it may be textbook behavior for yields to point the way forward for rates, I think investors forget something. The yield curve is inverted!

So what, you ask?

Well, let's break it down. Why is the yield curve inverted?

Because investors have been buying longer-dated bonds than shorter-dated bonds, although the longer commitments provided a lower yield. In a typical market environment, that doesn't make sense. They are only willing to commit for longer for a lower yield. If they buy a shorter-dated Treasury now, there is no telling what the market environment will be at maturity, and traders' cash will be exposed.

In other words, investors are not buying bonds for their yields but for safety. If that's the case, increasing Treasury demand, which pushes the yield lower, does not suggest an expectation for lower rates. Furthermore, I expect 10-year yields to fall lower yet, maybe even against a rising 2-year yield, steepening the inverted yield curve.

10-2 year Treasury Yield Daily
10-2 year Treasury Yield Daily

The 10-year yield climbed Friday above the neckline of an H&S top. However, it fell today back below it (barely), and the 50 and 100 DMAs curve down, suggesting 10-year yields will resume along their falling channel. Conversely, the 2-year yield broke the topside of a Symmetrical Triangle within an uptrend, indicating the lower dated bond will continue higher, steepening the yield curve inversion.

Big tech has been outperforming in the current rally, and I believe it's on the mistaken notion of a peaking Fed tightening cycle. Big tech should suffer the most during rising rates because higher borrowing costs outprice their valuations relative to neglected cyclicals, which provide significant value. If I am right, and this has been a bear rally rather than a bottom, the NASDAQ 100 should take the biggest hit. The technicals agree that the mega-tech index is overextended.

NASDAQ 100 Weekly
NASDAQ 100 Weekly

The NDX has been trading along a falling channel. On Friday, the index fell after reaching the top of the boundary. It just so happened that it's the same level as the previous low in March, adding to the resistance. The long-term downtrend is much more potent than the short-term uptrend, as much more interest is invested in it.

Also, note the two negative divergences: the Accumulation/Distribution and the Advance-Decline Line. While the former has an eighth of its peak breadth, the Accumulation/Distribution indicator has been flat in the current rally.

Trading Strategies

Conservative traders should wait for a long weekly candle to confirm that the falling channels remain intact before risking a short position.

Moderate traders would be content with a week that fails to break out the channel top.

Aggressive traders could short now, provided they accept the higher risk proportionate to the higher rewards of moving before the rest of the market. You must operate according to a coherent trade plan that incorporates your timing, budget, and temperament. However, if you don't know how to do that yet, feel free to practice with the following sample, understanding it's just a generic sample and does not represent the validity of the analysis. You do so for education, not profit, or you'll end up with neither. I guarantee it. No money back. Happy trading!

Trade Sample - Aggressive Short Position

  • Entry: 13,326
  • Stop-Loss: 13,526
  • Risk: 200 points
  • Target: 11,326
  • Reward: 2,000 points
  • Risk-Reward Ratio: 1:10

Disclaimer: The author currently does not own any of the securities mentioned in this article.

Chart Of The Day: Will The Nasdaq 100 Continue To 10,000?
 

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Chart Of The Day: Will The Nasdaq 100 Continue To 10,000?

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Comments (16)
Big Dome
Big Dome Aug 10, 2022 10:47AM ET
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The risk on that trade beyond reaason. A 200 point stop on 1 Nq ct is 4k. Better off shorting stock or long SQQQ at this level.
Moshe Ohr
Moshe Ohr Aug 10, 2022 5:43AM ET
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😌🙏
Darren Pluess
Darren Pluess Aug 08, 2022 2:30PM ET
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Never has a stock market ignored such catastrophic problems in the World economy.People this winter will simply have no disposable income.That means most companies other than food and energy are going to be hammered.Peiple will be selling EVERYTHING like the 1930,s.We are heading for depression not a recession.
Samer Diab
Samer Diab Aug 08, 2022 1:32PM ET
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no recession unless and until the 10 year 3 months inverts. this is the best indicator and not the 10 year 2 year. look at 98. 10 year 2 Year inverted but 10 year 3 months didn't so no recession. I Really wonder why the mainstream media rarely talks about the 10 year 3 months
Norm Peterson
Norm Peterson Aug 08, 2022 1:32PM ET
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Doesn't the 10 and 2 year imply a recession lasts about 2 years, not 3 months? Then again the Covid 2020 recession lasted only 2 months?
Pinchas Cohen
Pinchas Cohen Aug 08, 2022 1:32PM ET
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Samer, forgive me but you're confusing a correlation with the event. The inverted yield is an indicator, not a recession, which is not subject to an inverted yield. The 3 month is more precise, but it's moot once we already hit a technical recession. The same statistics you refer to with regards to the inversion refers to technical recessions, I believe. Happy trading!
Samer Diab
Samer Diab Aug 08, 2022 1:32PM ET
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Pinchas Cohen
Pinchas Cohen Aug 08, 2022 1:32PM ET
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Zakk Lioras
Zakk Lioras Aug 08, 2022 1:02PM ET
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as soon as I read the article I bought vix and shorted Nasdaq! I really admire and appreciate your help/work! Till now I am 3% upwards! waiting for September !!!
Pinchas Cohen
Pinchas Cohen Aug 08, 2022 1:02PM ET
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Great to hear, Zagg, just don't develop any guru attachments. i do not know the future. Happy trading
Zakk Lioras
Zakk Lioras Aug 08, 2022 1:02PM ET
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Having heard you these weeks: I shorted Nasdaq, I fully leverage bought VIX and I leverage shorted Natural Gas from 10 to 9.2!!! now waiting for bitcoin to test 17000 to enter leverage x2!Keep up the good work mr Cohen! and let some folks love economic growth fairy tales!
Ron Tinari
Ron Tinari Aug 08, 2022 12:54PM ET
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I have been doing this since 1986, and I believe your article is spot on, the only wild card I have with it is that I believe the Fed has become so political they will not execute their mandate properly. The notion the economy is to strong is almost funny if it weren't so sad.
Pinchas Cohen
Pinchas Cohen Aug 08, 2022 12:54PM ET
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Thank you, Ron. I share your concerns. Happy trading!
Dinu marian Dinu
Dinu marian Dinu Aug 08, 2022 12:21PM ET
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Dinu marian
Murali Krishna
Murali Krishna Aug 08, 2022 11:40AM ET
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Mr. Pinchas Cohen is bound be right now than he was with sp500
Michael Wilson
Michael Wilson Aug 08, 2022 10:45AM ET
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If we have the September/October sell-off so many analysts are predicting, then VIX will soar. Right now VIX September/October Calls are dirt cheap. The risk/reward ratio looks great. Let's see what happens in September/October.
Saim Saim
Saim Saim Aug 08, 2022 10:11AM ET
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thanks send me articl
 
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