NASDAQ PIVOT AROUND THE CORNERHello everyone,
The ascent of the past few weeks driven by major tech and AI stocks is coming to an end. There may be a further rise up to 4300 S&P500 future and 15000 Nasdaq 100 future, but it won't last long. The idea is that the impasse on the US public debt has made it favorable for capital to move out of the short-term government bond market, waiting to reenter after the issuance of new bonds following the debt ceiling increase. This has led such capital to seek refuge and profit in big tech and AI, supported by excellent earnings, promising guidance, and low operational debt, making them less risky in case of default and interest rate hikes.
Therefore, it can be expected that after the debt ceiling increase and the issuance of new short-term bonds with higher yields, the above-mentioned capital may reenter the treasury market, triggering a gradual sell-off in the tech sector due to the overbought condition and profit-taking. It should also be noted that the issuance of new bonds will drain liquidity from the system, leading to a correction in high-risk markets, namely a liquidity drain from equities.
In short, the recent surge in tech and AI over the past weeks is partly due to investors' high expectations for these stocks, but also, and above all, due to the need for capital from the government bond market to flee in anticipation of the debt discussion, and then reenter with higher yields by purchasing newly issued government bonds (the new yield upon issuance is obviously higher than in the past due to the increase in reference rates).
In conclusion, a plausible scenario is that futures reach 4300 for S&P500 and 15000 for Nasdaq100, and then correct downwards with the extended downward leg reaching 3800 and 11000 respectively.
Nice trading,
cheers
