Featured Trade Nasdaq 100 at resistance ahead of Trump Xi dinner date

Short-term technical outlook on US Tech 100 (Fri, 30 Nov)

Since the start of this week 26 Nov, the US Tech 100 Index (proxy for the Nasdaq 100 futures) had rallied by 6.34% to print a high of 6938 on Thurs, 29 Nov 2018. The Nasdaq 100 is considered a “higher beta/risk sensitive” index over the S&P 500 and DJIA where it has a higher weightage in growth-oriented stocks such as the FAANGs and semiconductors. The S&P 500 had recorded a lesser rally of 3.9% over a similar period.

There are two main catalysts for this positive reversal after the Index had declined by 10.6% post U.S. mid-term elections seen in the prior week. Firstly, a recent public speech by Fed Chair Powell on Wed, 28 Nov that stated that the policy fed funds rate “was just below the neutral level”, a stark change where he stated a month ago that the fed funds “rate was a long way from neutral”. The markets had interpreted it as a dovish stance where the Fed may pause its interest rate hike cycle in 2019, recalled that in the previous Fed “dot plot” released in the Sep FOMC, officials projected three interest rate hikes in 2019. The next dot plot release will be on 19 Dec, the last FOMC meeting for 2018.  

Secondly, a potential trade deal between U.S. and China that is expected to be announced over this weekend to defrost the current trade tensions when leaders from both sides have confirmed to “meet for dinner” at the G20 summit.

Positive outcome from Trump-Xi dinner date fully priced in?

The Index had recovered more than 50% of the losses since the post U.S. mid-term elections sell-off which may have almost priced in the most probable positive outcome scenario where a pause in the implementation of new tariffs on Chinese products coupled with a future date set for the next round of negotiation talks between U.S. and China trade officials.

On the flipside, any failure of any positive breakthrough or even an escalation of trade tension between U.S and China can create a negative feedback loop easily into the markets given the current heightened optimism.            

Key technical elements

• The on-going rally from its 20 Nov 2018 low of 6442 has almost reached a key inflection/resistance zone at 6950/7050 as per defined by the upper boundary of a medium-term descending channel in place since its 01 Oct 2018 all-time high of 7700.
• Yesterday, 29 Nov price action has formed a daily “Spinning Top” candlestick pattern right below the 6950/7050 resistance zone which suggests that the bulls are getting indecisive to push prices higher.
• Elliot Wave/fractal analysis suggest that the going corrective up move from 20 Nov 2018 low may have reached a reversal point where the 6950/7050 confluences with a Fibonacci expansion/retracement cluster (see 1 hour chart).
• Momentum indicators have indicated a potential slowdown in upside momentum of price action in place since the start of the week. The daily RSI oscillator is now right below a significant corresponding resistance at the 50 level and the shorter-term term hourly Stochastic oscillator has flashed a bearish divergence signal at its overbought zone.
• The short-term downside trigger level rests at 6838 which is defined by the minor ascending trendline support from 23 Nov 2018 low and the 29 Nov 2018 minor swing low (see 1 hour chart).

Key Levels (1 to 3 days)

Intermediate resistance: 6950

Pivot (key resistance): 7000/7050

Supports: 6838 (trigger), 6615 & 6495/435

Next resistance: 7220

Conclusion

The on-going up move has reached an inflection zone for a potential short-term bearish reversal to retest its recent Nov 2018 swing low area. If the 7000/7050 key pivotal resistance is not surpassed and a break below 6838 is likely to reinforce decline to retest the minor support of 6615 follow by the Nov 2018 swing low area of 6495/435.

However, a clearance above 7050 invalidates the bearish scenario for an extension of the corrective rebound to target the next intermediate resistance at 7220 (the pull-back resistance of the former primary ascending channel support from Jun 2016 low & 07 Nov 2018 swing high).

Charts are from City Index Advantage TraderPro