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

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.