Dow Jones, ASX futures remain firm while the Nasdaq struggles

The 20 and 60-day correlation between the Dow Jones and SPI 200 futures markets sit a strong 0.94, whereas the equivalent correlation scores with the S&P 500 futures contracts is 0.81 and 0.93 respectively. This means that ASX futures currently share a stronger correlation with the Dow Jones. And the two markets exhibit similar features in how they got to and retraced from their record highs.

In both cases their pullbacks have been relatively small, and this week’s price action remains elevated relative to their August highs. While the Dow formed a shooting star at the record high, the ASX 200 futures market formed a dark cloud cover (2-bar reversal), yet the subsequent fallout has been limited.

I suspect price action could remain choppy while we make our way towards Friday’s NFP. But unless the numbers are truly dire, I suspect traders will seek to buy any dips. Slightly softer-than-expected jobs data retains hopes of Fed cuts towards a soft economic landing, yet stronger data points to a stronger economy (and therefore stronger forward earnings), even if it could slow the pace of the Fed’s easing. From that views point, I see any pullback towards the August highs as tempting for bulls and both the Dow Jones and ASX 200 futures markets could be trading at record highs sooner than later.

Now if I were to short a major index, I would wait for turbulent times and likely pull up the Nasdaq. And that is because it had the deepest pullback from its record high in July among the Wall Street indices and is the only one of the three to not have reached a new high since. However, that is not to say I have an overly bearish outlook on the Nasdaq right now.

Middle East and US election could be key drivers for sentiment

I write this knowing that there are well-grounded concerns that War could spread across the Middle East and bring allies into the equation, sparking fears of a much larger-scaled war. Ther fact gold regained its footing on Tuesday reminds us that gold remains a safe-haven and not just a ‘dovish-Fed’ play. And should tensions escalate then it could weigh heavily on the stock market. Conversely, should the worst not happen and these fears subside, appetite for risk could be restored during a quarter that is usually associated with stock market gains.

With that said, the US election on November 5 is a clear event risk for global markets, and we could find that indices get caught in a volatile frenzy should Donald Trump take the lead in the polls leading up to it. It really depends on how the race goes, but as Trump’s policies are considered more inflationary then it could dent Wall Street sentiment. But for now, I suspect we’re simply looking at a regular pullback on US markets, and bulls are on the sidelines seeking to re-enter long.

Nasdaq 100 technical analysis

A shooting star also formed on the Nasdaq 100 futures chart on the same day as the Dow Jones. Prices are no trading below 20k, but only just. And while the retracement from last week’s high has been deeper than that of the Dow or S&P 500, price action is still constructively bullish as they pushed above the August high. Therefore, unless we enter an outright mode of risk off, we’re also seeking a swing low on the Nasdaq 100 futures chart.

Take note of the weekly VPOC (volume point of control) near the 19,531 swing low and 50% retracement level. The 20 and 50-day EMAs are also nearby for potential support over the near term.
The 25,550/60 region has been a pivotal level over the past few months, therefore a break above it is required to become confident that investors want to push the Nasdaq to a record high.
A break below 19,500 assumes sentiment has truly turned for the worse.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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