Trade Of The Week: NQ100_m In Focus As Rebalancing Kicks In

If you have an appetite for volatility, then keep a close eye on the NQ100_m!

This could be a wild week for the index thanks to high-risk events ranging from a special rebalancing which takes effect today, to Big Tech earnings and the major Fed decision.

Despite the technical pullback witnessed last week, the NQ100_m which tracks the underlying Nasdaq 100 index remains a bullish trend.

The low down….

Nasdaq 100 bulls have been on a tear this year, turbocharged by the AI mania that gravitated investors to a handful of big tech names.

Before prices tumbled last Thursday, the index was up almost 45% year-to-date!

Indeed, these gains have been powered by the ‘Magnificent Seven’ known as Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla whose combined weightings represented 55% of the index. In an effort, to limit the overwhelming influence of these tech titans, a special rebalancing will kick into effect before markets open today which will reduce the weightings from 55% to 44%. This development has the potential to spark some fresh action on the Nasdaq 100 as funds worth hundreds of billions of dollars move their allocation to mirror the new weightings.

The week ahead

We could see some more heightened volatility for the NQ100_m due to earnings from Big Tech companies this week.

Earnings from the likes of Microsoft and Alphabet on Tuesday 25th, and Meta on Wednesday 26th will the under the spotlight. When factoring how these Tech companies are within the top 5 holdings and account for roughly 16% of the Nasdaq 100 Index, their results could influence the index. Ultimately, a positive set of earnings may stimulate risk appetite, propelling the NQ100_m higher. Should earnings disappoint, this could drag prices closer to the 15300 support level – resulting in a potential breakdown.

Fed rate decision…

The Federal Reserve is widely expected to raise interest rates by 25 basis points on Wednesday.

However, the question is whether this will be the hike that concludes the central bank’s aggressive hiking cycle. Much attention will be directed to Fed Chair Jerome Powell’s remarks at the press conference for fresh clues on future monetary policy.

It is worth keeping in mind that tech stocks remain highly sensitive to Fed hike expectations because their value is based on earnings projected in the future.

• Should the Fed signal that more rate hikes could be on the cards, this could drag the NQ100_m lower.
• If the Fed hints it's done with raising interest rates, this may propel the NQ100_m higher.

Technical forces

Nasdaq bulls remain in a position of power above the 15300 level but the Relative Strength Index is flirting with overbought conditions.

Should 15300 prove to be reliable support, prices may rebound back towards 15700 and 15947, respectively. Beyond this point, the next psychological level can be found at 16000. Alternatively, a breakdown below this level may inspire bears to target 14965 and 14670.