E-mini S&P 500 Futures (June): Settled at 4183.50, down 41.75
E-mini Nasdaq-100 Futures (June): Settled at 13,356.75, down 353
U.S. benchmarks are sharply off Friday’s closing levels, and this should come as no surprise. As we discussed in our Friday Midday Market Minute, all too often we’ve seen Nonfarm Payroll gains dissipate at the onset of a new week. Furthermore, Fridays have generally been strong in recent months, to only give back chunks on Monday.
For us, a break below major 3-star support at 4200 in the S&P set the selling in motion. Although that trigger didn’t happen until after 1:00 p.m. CT, the sellers were driving the Nasdaq for much of the session. This brings us back to our conversation last Thursday.
The Dow hit a fresh record for its 4th consecutive session yesterday and we followed up on this conversation, saying:
At the onset of a new week, this divergence is front and center. Can the Dow maintain its pace of gains without Tech joining the party? Regardless, with the Nasdaq trading exactly in between 14,035 and 13,336 this morning, we don’t think this 700-point, or 5%, range will stick for long.
Lo and behold, after trading to a low of 13,305 and settling at 13,356 yesterday, the Nasdaq decisively broke below this support overnight. It’s our belief, for a large-scale, longer-term, thematic divergence like what we’re starting to see, a cleansing is in order first. What does that mean? We must see a broader selloff to remove some froth, and of course Tech sells off to a larger degree than Financials, Industrials, Materials, and Energies.
Yesterday may seem like the start, however, it’s been happening for 3 months. Yes, the Nasdaq did make a new high in April, but couldn’t break out above major 3-star resistance at 14,035. Only Microsoft, Alphabet, and Facebook joined the party, briefly. However, Apple, Amazon, and the chip sector each failed to breakout above previous highs, whereas software has lagged significantly since February.
Furthermore, the Nasdaq sold off from its February 16th high by 12%. The Dow only sold off by less than 5%, after putting in a high more than a week later, February 25th. From their respective lows, the Dow and Nasdaq each gained 15%. The Nasdaq now topped 2 weeks ago and the Dow may have yesterday. These are similar patterns to February, but what we’re getting at is the divergence may be larger this time around.
On the economic calendar, JOLTS Job Openings came due at 9:00 a.m. CT. We then look to a deluge of Fed speak; NY Fed President John Williams at 9:30 a.m. CT, Fed Governor Lael Brainard at 11:00 a.m. CT, San Francisco Fed President Mary Daly at noon CT, Atlanta Fed President Raphael Bostic at 12:15 p.m. CT, and Philadelphia Fed President Patrick Harker at 1:00 p.m. CT. All are 2021 voters, except for Harker. Tomorrow brings the much-awaited CPI data.
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