Nasdaq In Focus Amid Earnings

• Alphabet, Microsoft could be precursor of what’s to come 
• Rebounds of 10% or more for Nasdaq have consistently evaporated this year  
• Slumping Chinese equities raise red flag

After the disappointing earnings results from Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), and ahead of more tech earnings from the likes of Meta Platforms (NASDAQ:META), today, as well as Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) tomorrow, the Nasdaq is the obvious chart of choice to watch closely as results pour in.

While European markets recovered, US futures were still trading lower in early parts of the EU session on Wednesday, after earnings from tech giants Alphabet and Microsoft disappointed investors, with shares of both companies being more than 6% lower in the after hours. The disappointing results come as the major US indices were looking to build some momentum after a sharp rally last week encouraged more buying at the start of this week.

If we see more of the same from the rest of the tech giants due to report this week, this could completely derail the recovery in the Nasdaq and S&P 500, which have been supported in part by the slight weakness in bond yields—ironically as a result of weakness in US data, highlighting recession risks (and thus bringing the termination of rate hikes closer).

Nasdaq 100 Futures Daily

For now, though, the bears have lost control of short-term price action, so we will need to see a confirmed reversal pattern before they come back out in force. It could happen quite soon, so be prepared as I don’t think the markets are out of the woods yet, with much of the existing macro themes that have weighed heavily on the markets this year are still there.

Notice from the chart that rebounds of 10% or more have invariably failed to hold on several occasions, before the index has gone on to fall to new lows on the year. We have just crossed the +10% recovery-off-the-low threshold, so do watch out if you are bullish or long.

Meanwhile, another feature of these bear market bounces has been the formation of lots of bull traps. Whether that has been the case of the index breaking a previous short-term high, or breaking trend lines, the results have been the same: a brief break for a few days at most, before the inevitable sell-off.

There’s also something else that the market needs to take into account: China.

As the chart below shows, Chinese equities have consistently underperformed over the last couple of years and have led the global markets lows. On Monday we saw another sharp drop to a new low for the year. This is a massive warning sign for the rest of the world. 

Nasdaq Vs. China A50

So, the trigger for another sell-off could either be the potential for more disappointing tech results, worries over a recession/stagflation coming back to haunt investors, or China. Proceed with extra care on any new long positions if not already long. 

Disclaimer: The author currently does not own any of the instruments mentioned.