Nasdaq at risk as US credit spreads widen further

FUNDAMENTAL OVERVIEW

The Nasdaq has picked up some support from dovish remarks by the Fed that pushed back against the possibility of a rate increase in October, along with a softer-than-expected non-farm payrolls report that further reduced the likelihood of such a move by the central bank.

However, the geopolitical landscape remains largely unchanged as the standoff between the US and Iran continues without resolution. Beneath the surface, troubling signals are emerging, with US credit spreads widening — a development that has historically preceded stock market downturns.

A divergence is visible between credit spreads and the Nasdaq. Credit spreads serve as a reliable gauge of financial conditions and risk appetite. When growth expectations rise, credit spreads narrow and risk sentiment improves. Conversely, when growth expectations weaken, credit spreads broaden and risk sentiment deteriorates.

This week's calendar is relatively light, so attention is expected to remain on US-Iran developments. A diplomatic breakthrough would be favourable for the Nasdaq, potentially triggering a further unwinding of aggressive Fed rate hike expectations and improving the economic outlook. On the other hand, a prolonged standoff or worsening conditions could continue to drag on growth expectations and put pressure on the Nasdaq.

NASDAQ TECHNICAL ANALYSIS – DAILY TIMEFRAME

The Nasdaq recently reached a new all-time high but was unable to sustain the advance. A major upward trendline defines the bullish structure on this timeframe. Should a pullback occur, buyers are expected to defend the trendline with a clearly defined risk below it, positioning for a rally to fresh record highs. Sellers, meanwhile, will be looking for a break below the trendline to extend the correction toward the 28,750 level.

NASDAQ TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

NASDAQ TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1-hour chart, a minor downward trendline defines the current pullback. Sellers are likely to lean on this trendline with a defined risk above it, aiming to push prices to new lows. Buyers, on the other hand, will seek a break above the trendline to increase bullish bets and drive the index to new record highs.

UPCOMING CATALYSTS

Today brings the US ISM Services PMI. Wednesday features the release of the FOMC meeting minutes. Thursday sees the latest US Jobless Claims figures, and Friday concludes the week with the University of Michigan Consumer Sentiment survey.