THE US market’s main indexes marked stellar performance in the first half of 2024, with the Nasdaq Composite climbing 18.1 per cent, the S&P 500 index rising 14.5 per cent, and the Dow Jones Industrial Average (DJIA) up 3.8 per cent. However, July saw big swings in market performance. Signs of rotation into cyclicals and small-mid cap companies led the Russell 2000 index to rise 10 per cent and the DJIA to climb 4.4 per cent, outperforming the Nasdaq (down 0.8 per cent) and the S&P 500 (1.1 per cent).
With the widely expected September rate cuts looming, recent market movements are likely due to a myriad of factors, such as profit-taking from mega-cap technology counters, recession fears as well as a rotation into cyclical sectors. Additionally, individual companies have been releasing earning reports and forecasts for the remaining of the year. The US 10-year Treasury yield has also dropped below 4 per cent for the first time since February.
With the upcoming presidential election, investors and traders are likely also pricing in the risks of trade tensions with US trading partners due to potential tariffs that Republican nominee Donald Trump might impose if he takes office.
Bullish scenario
The Nasdaq saw a correction compared to other US market indexes recently. Nearing the support zone between 18,450 to 18,750, there is potential for a short-term rebound back to the 19,400-19,600 zone which aligns with the 50-day Simple Moving Average (SMA) area. The support zone also coincides with the bottom of the uptrend channel which the index has been in since December 2023.
If the index manages to rebound above the first resistance at the 50-day SMA line, the next resistance would be the psychological level of 20,000.
Bearish scenario
The index is likely to test support levels with stronger downward pressure despite a potential short-term rebound. The 20-day and 50-day SMA lines are likely to intersect soon, highlighting the magnitude of recent pullbacks, as seen by the length of the candles on the days the index fell. This indicates the innate selling pressure from traders and investors, despite the index’s previous outperformance in earlier months.
The writer is manager (dealing & investor education) at Phillip Securities
