Markets Under Pressure: Tech Leads Declines Amid Fed Rate Concerns

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Our View

The global markets are poised for another challenging trading session as investors digest the aftermath of Friday’s stronger-than-expected jobs report. U.S. stock futures are under pressure during early Globex trading, led by declines in technology-heavy Nasdaq 100 futures, which are down 1.2%. The S&P 500 futures have fallen 0.8%, while Dow Jones Industrial Average futures are off 0.3%.

The tech sector continues to bear the brunt of the selling pressure, with top momentum stocks like Tesla (TSLA) and Nvidia (NVDA) leading declines. Investors are increasingly concerned that persistent strength in the labor market could force the Federal Reserve to keep interest rates higher for longer, dampening prospects for a near-term pivot.

Treasury yields are extending gains, with the 10-year yield nearing 4.8% and the 30-year yield approaching 5%, reflecting persistent fears of sticky inflation. The dollar is climbing to a two-year high, further tightening financial conditions, while energy prices add to market woes. Brent crude has risen to over $81 a barrel, with West Texas Intermediate trading above $78, fueled by geopolitical tensions and supply concerns.

Key to today’s trading will be the market’s interpretation of economic signals ahead of Wednesday’s critical Consumer Price Index (CPI) report. With inflation remaining a dominant concern, a higher-than-expected reading could amplify bearish sentiment.

Traders should watch for continued volatility, particularly in interest rate-sensitive sectors such as technology. Additionally, rising energy prices could place further strain on consumer spending and corporate margins. Barring any surprise developments, today’s session may reinforce the cautious tone set by last week’s selloff. Traders are likely to maintain a risk-off approach, awaiting more clarity on the inflation outlook and Federal Reserve policy trajectory.

-Marlin

There are only 5 trading days left until Inauguration Day on January 20 which this year falls on a Monday and is a US Federal Holiday for MLK. Sometimes you have to go down in order to go up. Watch the opening auction today on the MiM and see if it supports this gap down open with showing a less than -66% percent lean, it should be in the area of -80%. Then watch the equities open and the trading ticks for the existence of buyers. Gap and drop is possible with a trend day of selling.

Our Lean: There is a lot of sideline cash to be put back in so these selling events become buying events with a shortened January. Volatility is high so 50-point bounces in the ES today are certainly possible and should set up good shorting opportunities.

-Marlin

MiM and Daily Recap

The ES came into the Friday jobs number with a Globex low of 5920.50 and a Globex high of 5959.25. Just before the release, it traded at 5946, but the surprise of the larger number of jobs caused a quick and hard selloff down to a new Globex low of 5888 on a one-minute candle. A quick rally back to 5917 failed, leading to a test of the low before moving up again and sideways into the regular session open.

Upon opening at 5920.75 and only ticking one point higher, the ES selling continued with a stair-step decline providing three nice pullback entries for short-sellers and printing a low of the move at 5852 at 10:13 a.m. A good 30 minutes of short-covering followed, as the ES rallied back to resistance at 5893 by 10:49 a.m., where the sellers came in with force again, resuming the downtrend to another new low of 5848 at 11:38 a.m. Another pop from here back to resistance 20 points higher failed on its retest, and the ES slid down again, making another low, which would be the low for the day, of 5845.25 at 12:09 p.m. With a slight divergence from the NQ not making a new low on this move, and a sideways 15-minute doji candle in place, the buyers came in and started running the stops, creating a steady and consistent uptrend running all the way back through the figure and printing 5907.25 just before 2 p.m.

With a quick test of this print and subsequent failure, a large sell program followed, reversing down to 5878 in just 10 minutes. This exhausted most of the action for the day, as the ES moved sideways from there, with some spurts of buying and selling but mostly staying range-bound from 5886 to 5876 for the next three hours, with one slightly higher push and one slightly lower breach of this range. With an upside failure to move above the 5886 level at 3:06 p.m., the ES moved lower again ahead of the weekend, printing 5858 again at 3:32 p.m. before popping back up to 5872 and then down around 5865 for some range-bound chop as we waited for the MiM release. The 3:50 p.m. imbalance came in at -2.6 billion to sell but decreased to -2.0 billion to sell on the update and then turned to a small buy of 470 million on the cash close. There was not much overall reaction, as we settled at 5866.25 and drifted slightly lower to sideways to the exchange closing print of 5861.50, down 83.25 points (-1.4%). The NQ closed at 20,997.75, down 303.75 points (-1.43%). Volume was heavy, with the ES trading 2 million contracts while NQ traded 691,000 contracts.

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!