S&P 500, Nasdaq 100 post modest gains after Tuesday’s turmoil

S&P 500, Nasdaq 100 – Talking Points

• S&P 500 bounces slightly but stops below key resistance
• Nasdaq 100 outperforms as bulls defend 12100
• Traders digest the possibility of a 100 basis points hike next week

Equities are posting a modest rebound from Tuesday’s fall, along with the Nasdaq 100 major US benchmarks. Equities posted their worst day on Tuesday after a higher-than-expected CPI print. In fact, Tuesday’s session was the worst for all three major benchmarks since June 2020.

Market expectations for next week’s FOMC meeting have changed dramatically as a result of yesterday’s CPI print. The prospect of a 50 basis point (bps) increase has effectively disappeared, as traders instead began to focus on the possibility of a 100 bps hike by the Fed. This “revaluation” on Tuesday caused Treasury yields to rise 22 basis points in the 2-year Treasury yield. That advance has cooled today with only 2 bps in 2 years.

The Nasdaq 100 Futures (NQ) is risky after the opening bell despite some choppy conditions. Prices gained a lot after this morning’s PPI release, as the bulls successfully defended several attacks on the 12100 area. The price has since bounced strongly above the 12,200 mark as traders caught up with the revised expectations of a tightening of the Federal Reserve. A jump in US Treasury yields hit many stocks higher yesterday, and a further rise in the yield curve could continue on the NQ at next week’s FOMC meeting. As long as there is support near the 12100 hold, the bulls can stay in control and we can continue to retest Tuesday’s decline.

Nasdaq 100 Futures 1 Hour Chart

Chart created with TradingView

Unlike the NQ, the S&P 500 futures (ES) were able to break above Tuesday’s lows following the PPI. As it happened in the last hour of trading yesterday, there was a downside buying in the range of 3940. The price is registered with Fib resistance at 3983, which is a 50% retracement of the advance from June lows. A failure here could open the door for further weakness in next week’s FOMC, as traders question the possibility of a full 100 basis points increase. In the face of additional weakness I would look to the 3900 area for support, which is a 38.2% retrace of the same advance from June lows.

S&P 500 Futures 1 Hour Chart

Chart created with TradingView

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— Written by Brendan Fagan

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