Takeaway

The presenter highlights a potential short-side opportunity in the Nasdaq 100, which is diverging from and lagging the S&P 500. He argues that a break below the 28,950 support level could open the door for significant downside, especially if the Federal Reserve is hawkish this week. This view is set against a backdrop of US 10-year Treasury yields testing the key 5% level and rising crude oil prices threatening to reignite inflation concerns.

What the presenter said

• The upcoming week is significant due to rate decisions from both the Federal Reserve and the Bank of Japan. [00:07]
• The Federal Reserve is widely expected to hike rates on Wednesday. [00:10]
• The presenter expects the first touch of 5% on the US 10-year note to catch a bid, but believes it will not be a lasting one. [01:24]
• The real problem area for US 10-year yields is 5.25%, as a move above this could signal that the Fed has lost control. [04:07]
• The presenter notes that oil prices could "steal the show" from other inflation data, which is a key driver for central banks. [06:39]
• If crude oil crests above $100 and moves toward $120, it could create a host of issues. [08:00]
• The fundamental backdrop for USD/JPY still favors the long side due to higher US inflation, but the chart shows an "up the stairs, down the elevator" pattern and may be in the early stages of a move lower. [09:41, 11:00]
• The S&P 500 has pushed to a fresh high, but the Nasdaq 100 has not, indicating a divergence and caution ahead of the Fed meeting. [14:43]
• The presenter draws a historical parallel to the Tech Bust in 2000, when the Nasdaq 100 topped first and led the way lower, with the S&P 500 following months later. [15:26]
• A break below 28,950 in the Nasdaq 100 would break a symmetrical triangle, opening the door for further downside. [16:10]

Trade ideas

• Instrument: US 10-Year Note

  • Direction: Long
  • Rationale: The first touch of 5% is expected to trigger a short-term bid and a pullback in yields.
  • Entry: Around 5%
  • Target: A pullback in yields
  • Stop: None stated
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: USD/JPY

  • Direction: Short
  • Rationale: If the pair rallies to the 155 level, sellers may step in for continuation, given the chart pattern.
  • Entry: Around 155
  • Target: Further downside
  • Stop: None stated
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: NASDAQ 100 Futures

  • Direction: Short
  • Rationale: A break below support would confirm a bearish pattern, making it an attractive short-side equity play.
  • Entry: On a break below 28,950 / 29,000
  • Target: 28,000, 27,000, and potentially 26,300-26,400
  • Stop: None stated
  • Horizon: Short-term
  • Conviction: Medium

Levels and data cited

Price Levels: * US 10-Year Note Yield: * Resistance: 5.00% (expected to catch a bid), 5.25% (problem area) * Support: 4.90% (intraday low after bid) * Other: 4.992% (level almost touched) * Light Crude Oil Futures: * Resistance: $100/bbl * Target: $120/bbl * USD/JPY: * Resistance: 155 * NASDAQ 100 Futures: * Support: 29,000 / 28,950 * Target: 28,000, 27,000, 26,300-26,400 (prior swing high)

Data Cited: * Federal Reserve: Expected to hike rates at its upcoming Wednesday meeting. * Bank of Japan (BOJ): Expected to hike rates later in the week. * US Treasury: A "Maturity Wall" on Oct 23, 2023, caused 10-year yields to touch 5%. Janet Yellen's subsequent shift to short-term debt issuance in the November 2023 QRA caused yields to fall. * Inflation: US inflation is well above the 2% target, while Japan's is about half of the US level.

Risks and what would invalidate this

• The risk that the US Treasury's ability to refinance its debt by issuing short-term paper may be limited as the overall debt size increases.
• If US 10-year yields surpass 5.25%, it could signal a loss of Fed control, leading to problematic long-term rates.
• A significant rise in crude oil prices (above $100 or $120) could exacerbate inflation.
• The Bank of Japan could make unexpected policy moves that impact the USD/JPY exchange rate.
• The Fed's communication on rate hikes could upset equity markets if it takes a hard hawkish stance.
• The divergence between the S&P 500 and Nasdaq 100 could signal broader market weakness if the Nasdaq breaks key support.