Nasdaq rally since the March 2023 tech bank/sector bailouts is looking over stretched. In the unlikely pause by the Fed hiking rates for June, indexes have already priced in a pause in July. Deflation has not trumped inflation as yet.
Since the March 2023 bailout of banks that lend to the tech sector, after their bond portfolio blew up due to the Federal Reserve lifting interest rates to combat inflation. The said Central Bank also embarked on Quantitive Easing, i.e, taking depreciating bonds and assets onto their balance sheet, which swelled to over 8 Trillion. Without much reduction of their balance sheet's QE programs. So, the excess liquidity (printed money) which went back to commercial and investment banks had to end up somewhere, and long behold it went straight back into speculation of tech stocks and/or NASDAQ/S&P 500 futures. And that's how it goes when modern day Central Banks go beyond their mandates of ensuring market stability.
The above chart plots the obvious, which also shows the trickiness of trading within the NASDAQ's trading ranges/supports at 11875 and 12596 (red horizontal lines), with its resistance (green line) breached at 13000.
The index is overbought with mostly short covering, awaiting if the Fed do indeed pause. Which I feel they will not. Regardless, the market is pricing in an extended pause in rate hikes by the Fed, at least after their July 2023 meeting.
Chart 2 shows how stretched the NASDAQ and S&P 500 have become since March 2023.
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