FUNDAMENTAL
OVERVIEW

The Nasdaq has been surging into new record highs despite the prolonged
US-Iran stalemate and the Strait of Hormuz closure. The rally in April was
justified by easing US-Iran tensions, the constant push for a diplomatic
resolution instead of another full-fledged war and expectations that a deal
would be reached eventually.

Now, we are likely approaching an inflection point as from an asymmetric
point of view, the near-term fundamentals are turning bearish.

In fact, it wasn’t just the US-Iran de-escalation supporting the stock
market, but also the Federal Reserve’s easing bias. This has led to an easing
in financial conditions even without rate cuts as real yields fell.

Now there are two main risks ahead: the restart of the war and a hawkish
Fed. Yesterday, we had Iranian reports saying that the US would propose a
temporary waiver to sanctions. That helped stocks for a bit, but the gains were
quickly pared after US officials denied the reports.

Moreover, Trump said on Truth Social that a large-scale military strike
against Iran got suspended at the request of Gulf leaders to allow for peace
talks to continue. He added that there is a “good chance” of a deal
now. Despite Trump’s post, the market failed to rally. This might be a signal
of exhaustion.

If we do get an official resolution, the reopening of the Strait could give
the Nasdaq another boost in the short-term as oil prices will likely fall and
rate cut bets will increase. After that though, the focus will quickly turn
back to the Fed and the economic data.

With the end of the war and the reopening of the Strait of Hormuz, the
increase in economic activity could keep inflation higher for longer and
eventually require rate hikes anyway.

Today, we got the Bank of America Fund Manager Survey where “just 4% of
fund managers see a hard landing” ahead. I think that’s the strongest signal of
too much optimism if you couple it with the “record rise in equity
allocations in May”. There’s too much good news priced into the market.

Although a second wave of inflation is now the biggest tail risk, consecutive
Fed rate hikes would be even worse. If conditions in the Strait of Hormuz don’t
change and oil prices remain elevated, then Fed tightening into such conditions
would trigger a crash in the stock market and that’s when the hard landing
probabilities will start to climb quickly.

NASDAQ TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On
the daily chart, we can see the strong bullish momentum has finally stalled. The Nasdaq is now
consolidating above the 28,800 level. From a risk management perspective, the
buyers would obviously have a much better risk to reward setup around the
26,400 level but we will likely need a more hawkish Fed or an escalation on the
US-Iran front to trigger such a major correction.

NASDAQ TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On
the 4 hour chart, we can see the
price broke below the upward trendline that was defining the bullish momentum
since the start of this incredible rally. This consolidation looks like a head
and shoulders pattern with the target near the 27,600 level. We can expect the
buyers to step in around the 28,800 neckline with a defined risk below it to
keep pushing into new highs, while the sellers will look for a break to pile in
for a pullback into the 27,600 level.

NASDAQ TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, we
have a minor downward trendline defining the current pullback into the 28,800
support. If we get a bounce around the support, we can expect the sellers to
lean on the trendline with a defined risk above it to position for a drop back
into the support targeting a breakout. The buyers, on the other hand, will look
for a break higher to increase the bullish bets into new record highs. The red
lines define average daily range for today.

UPCOMING CATALYSTS

Today, we have Fed’s
Waller speaking. Tomorrow, we have the FOMC meeting minutes. On Thursday, we
get the latest US Jobless Claims figures and the US Flash PMIs.