The , often referred to as the 'anxiety meter' of the market, is hovering at pre-pandemic lows, yields are falling and investors are focused on a V-shaped economic recovery as they await Friday's key report, among others to come out this week.
Yesterday in our Week Ahead post we showed how last week's trading made reflation trading the leader of the market rally again. Based on the outlook for the , we now think growth stocks may be back in vogue.
The Federal Reserve's continued excesses regarding the timing and path to tightening are likely to make investors less confident in that source. Instead, economic data could become a market driver this week ahead of monthly US employment data. Also, the Delta strain of the coronavirus, which is highly contagious, has caused the number of pandemic cases to rise in Asia and elsewhere, increasing the risk of lockdowns around the world.
This mix of catalysts could once again avert stock rotation away from value stocks as investors return to what they see as the tried and true of last year's lockdowns, namely technology stocks.
That is reflected in today's activity; the tech-heavy contracts currently lead all US futures, with the and underperforming.
Also in the technical charts, the NASDAQ Composite has the most bullish trading patterns of the major indices.
The NASDAQ recently completed two bullish patterns simultaneously: a falling flag, right against the apex of an ascending triangle, which helped the flag complete.
The flag's implicit target is 14,800, while the triangle's implied target is approaching 16,000. The flag's target is expected to reach its target in a few weeks, while the larger triangle's target will be reached in about four months. wait for the prize to retest the flag/triangle, showing support.
Moderate traders would buy the dip.
Aggressive traders can take an opposite short position, after a two day break, in case there is a return move, before joining the rest of the market in a long position. While this position is risky, it offers an exceptional risk-reward ratio. Here is an example.
Trading Example – Aggressive Opposing Short Position
Input: 14,400
Stop Loss: 14.420
Risk: 20 points
Target: 14,200
Reward: 200 points
Risk: Reward Ratio: 1:10
