Nasdaq – Rally running on fumes after Fed and NFP boost

• Recovery stalling after a brief boost
• Fed and jobs report provide optimism
• Major technical resistance tested

It’s been a relatively subdued start to trading on Monday, with stock markets struggling to maintain the momentum from the second half of last week.

Investors got everything they wanted from the Federal Reserve and the jobs report. Chair Jerome Powell and his colleagues adopted a slightly less hawkish tone for the meeting while maintaining its extremely cautious position on inflation and interest rates.

The jobs report, meanwhile, brought a miss on the NFP number – alongside downward revisions totaling another 101,000 jobs from prior releases – and arguably more important, a miss on the wages component meaning two of the last three reports have produced 0.2% monthly readings. If repeated, this could be a game changer.

The Fed is desperate to take some heat out of the labor market as it believes it’s required to get inflation sustainably back to 2%. But if wage growth continues to fall, 2% inflation may be achievable without too much disruption. I’m not sure that’s the likely outcome at the moment, but it’s certainly a positive development.

That said, the response in the second half of the week didn’t look particularly sustainable. It was arguably over the top under the circumstances but investors have been eagerly awaiting the turning point in the data. Perhaps they’ve been premature on this occasion but data over the coming weeks may prove otherwise.

A retracement or something more?

Interestingly, the rebound has run out of steam at an interesting resistance point which could determine whether we’re seeing just a retracement or something more.

NAS100 Daily

Source – OANDA on Trading View

There is a confluence of resistance points including the descending trend line, the 55/89-day simple moving average band, and the 61.8 Fibonacci retracement level – July highs to October lows.

A move above here could suggest there’s more to this move and that investors have turned more bullish after a three-month correction that totaled more than 10%.

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