The Nasdaq experienced a pullback attributed to profit-taking and hedging ahead of Fed Chair Powell’s speech at the Jackson Hole Symposium. Initially, the Nasdaq performed well following the US CPI report aligning with expectations but was affected by hotter-than-expected US PPI data, improving jobless claims, and rising inflation expectations.<\/p>\n
Attention shifted to Powell’s speech, with traders concerned about potential hawkish signals. Selling and hedging increased, causing a deeper pullback in the market. There’s anticipation that Powell will not commit to rate changes, but if a rate cut is hinted for September, a rally is likely as hedges are unwound.<\/p>\n
The Nasdaq dropped back to a significant upward trendline on the daily chart, where buyers and sellers are strategising. Buyers aim to push towards new highs, while sellers seek a break below the trendline for further declines towards the 22,800 level.<\/p>\n
On the 4-hour chart, a minor upward trendline was broken, influencing sellers’ positions. Continued defensive trading led to further pullbacks. The 1-hour chart shows a minor downward trendline demarcating bearish momentum. Upcoming economic data and speeches, including Powell’s, add further market volatility factors.<\/p>\n
Given the Nasdaq’s pullback to a critical upward trendline, we see this as a direct result of traders reducing risk ahead of the Jackson Hole speech. Recent strong data, like the Producer Price Index for July beating forecasts at 0.6% month-over-month and jobless claims falling to a low of 205,000 last week, has fueled uncertainty about the Fed’s next move. This nervousness is causing traders to take profits and hedge their bets.<\/p>\n
The uncertainty in the market is visibly reflected in volatility measures. The CBOE Volatility Index (VIX) has climbed from its monthly low of 14 to over 18, indicating that options traders are pricing in a much larger potential swing in the Nasdaq over the next 30 days. This elevated VIX makes it more expensive to buy options but also signals that a significant market move is anticipated.<\/p>\n
The primary focus is Fed Chair Powell’s speech this Friday, which could trigger a sharp move in either direction. His tone will be crucial; a hint that a September rate cut is on the table could cause a strong rally as defensive positions are unwound. However, if he suggests that the Fed needs more time and data before considering a cut, it would likely be seen as hawkish and could send the market lower.<\/p>\n
For traders anticipating a rally from this trendline, buying call options or call spreads on the Nasdaq 100 provides a way to participate in the upside with a defined risk. This strategy aligns with the view that dip-buyers will step in at this key technical level, betting on a dovish outcome from the speech. A break above the short-term downward trendline would be a key signal for this position.<\/p>\n
Conversely, those who believe the recent hot inflation and jobs data will force a hawkish stance from Powell could consider buying put options. This would protect against a break of the major trendline and a potential slide towards the 22,800 level. Such a trade would profit from an increase in downside momentum following the speech.<\/p>\n
For traders who are unsure of the direction but expect a big move, a long straddle or strangle could be an appropriate strategy. By purchasing both a call and a put option, this position profits if the Nasdaq moves significantly in either direction, capitalizing on the heightened volatility expected from the event. This effectively is a bet that the market’s baseline expectation of a neutral, data-dependent speech is wrong.<\/p>\n
We have to remember the market’s sharp reaction to Powell’s hawkish tone at the Jackson Hole symposium back in August 2022, which triggered a significant sell-off in the weeks that followed. That historical precedent shows how a short, decisive speech can reset market expectations and provides a clear example of the downside risk. The market is positioned on a knife’s edge, waiting for a clear signal.<\/p>\n
Before Powell speaks on Friday, we will be watching today’s FOMC meeting minutes and tomorrow’s US Flash PMI and Jobless Claims data. These releases will cause short-term price swings and could influence market positioning heading into the main event. Traders should be prepared for volatility throughout the entire week, not just on Friday.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Nasdaq pulled back on profit-taking, hedging, and rising inflation concerns ahead of Powell\u2019s Jackson Hole speech.<\/p>\n","protected":false},"author":62,"featured_media":16992,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-29337","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/29337","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=29337"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/29337\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/16992"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=29337"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=29337"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=29337"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}