Nasdaq 100, Dow Jones Futures, 10-Year Treasury Yield, NFPs – Week Ahead
- Nasdaq 100 may continue outperforming Dow Jones futures ahead
- Falling Treasury rates, Delta variant, soft NFPs may play key role
- Nasdaq 100 eyeing bearish Rising Wedge however, watch support
Will Nasdaq 100 Continue Outperforming Dow Jones Futures Ahead?
The Nasdaq 100 could stand to benefit from key fundamental forces this week, opening the door for the tech-heavy index to outperform Dow Jones futures. On the chart below is a ratio of the Nasdaq 100 versus the Dow Jones. When the line is rising, that means the former is outperforming the latter and vice versa. The ratio can be seen tending to inversely track the 10-year Treasury yield.
Declines in the latter have been occurring amid a combination of weakening global growth prospects and cooling concerns about sooner-than-anticipated Fed tapering. Rising Covid cases around the world amid the more contagious Delta variant have been forcing nations, such as Australia and recently China, to reintroduce lockdowns to contain spreads.
Unsurprisingly, this is tending to skew the risks towards cyclical stocks, which are more populated in the Dow Jones. Tech shares have seen a material outperformance compared to other sectors since last year’s Covid outbreak. With that in mind, investors may continue favoring the Nasdaq 100 in the short term as the Delta variant places more risks to the global economy.
All eyes are turning to Friday’s US non-farm payrolls report, where a softer-than-anticipated outcome risks further denting economic growth prospects. If that sends longer-term Treasury yields lower still, then the Nasdaq 100 could continue outperforming the Dow Jones in the following trading sessions. There are a couple of risks that traders out to be mindful of, however.
It is possible that a materially weaker jobs report induces aggressive risk aversion in financial markets. In such a scenario, the Nasdaq 100 may be more vulnerable considering perceived lofty valuations in the tech sector. Meanwhile, US Senators may pass a $550 billion infrastructure bill this week. That could rekindle bond yields, bring forward Fed tapering bets, skewing the favor back towards the Dow Jones relative to the Nasdaq.
Nasdaq 100 Technical Analysis
The Nasdaq 100 fins itself trading within a bearish Rising Wedge chart pattern. A breakout lower may open the door to reversing the near-term uptrend. This also follows negative RSI divergence, showing that upside momentum is fading. That can at times precede a turn lower. Such an outcome would likely place the focus on the 100-day Simple Moving Average (SMA). The line may act as key support down the road, opening the door to resuming the dominant uptrend.
— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter