Nasdaq: Analysis as Warsh Says Prices Are Too High, Chips Retreat

Warsh Said Prices Are Too High and Chips Gave Back First-Half Gains

The S&P 500 is trading mixed early Wednesday inside the retracement zone that has been controlling direction all week. The Nasdaq opened above its 50-day and immediately ran into resistance. The Dow is crawling higher for a fourth straight session toward the record at 52,655.66.

Semiconductor stocks led the selling as investors locked in profits after the VanEck Semiconductor ETF posted a gain of more than 80% in the first half, its best since the fund launched in 2000.

Warsh spoke at the ECB conference in Portugal and gave the market nothing on July. No forward guidance. No rate signal. He kept it on inflation. “We’ve looked around, and we’ve seen that prices are too high.” One sentence and the market had its answer.

Daily S&P 500 Index (SPX) Technical Analysis

The S&P 500 Index is putting in a mixed performance early Wednesday as investors navigate the key short-term retracement zone at 7474.57 to 7429.38 that will determine whether this week’s rally extends or another leg lower begins.

Setting the tone earlier in the week was the recapturing of the 50-day moving average at 7386.58. This indicator is offering guidance as well as support.

A sustained move over 7474.57 will indicate the presence of buyers. This could create the upside momentum needed to challenge the secondary lower top at 7577.92 and the main top at 7620.90.

A sustained move under the 50% level at 7429.38 will be the first sign of weakness. If this creates enough downside momentum then look for a test of the 50-day MA.

Daily Nasdaq Composite (IXIC) Technical Analysis

The tech-weighted index opened on the strong side of the 50-day moving average at 25881.63, which is providing support and trend guidance. It is now facing headwinds at 26085.30 to 26346.05. This is the area that buyers have to overcome to sustain the developing rally.

A breakout over 26346.05 could trigger an acceleration into the secondary lower top at 26788.62 and the all-time high at 27190.21. The inability to sustain a rally over 26085.30 will signal the presence of sellers or limited buyers. This could lead to a retest of the 50-day MA. If that fails then look for a possible acceleration to the downside.

Daily Dow Jones Industrial Average (DJI) Technical Analysis

 

The Dow Jones Industrial Average is crawling higher for a fourth straight session on Wednesday as it edges toward the record high at 52655.66.

Although it is vulnerable to near-term pullbacks, it is well-supported by a series of retracement levels from 51282.37 to 50216.36. A minor swing bottom at 51301.77 and a main swing bottom at 49909.07 are additional support.

The 50-day moving average at 50482.73 is both support and a trend indicator.

Given the current upside momentum, it looks as if the we’re headed to a test of the all-time high at 52655.66 as investors continue to lighten up on technology shares ahead of earnings season and move back into more traditional companies.

Chips Took Profits and the Rotation Into the Dow Kept Going

Micron, Sandisk, Nvidia, and Broadcom all traded lower Wednesday. After 80% in six months the semiconductor group earned a day of selling. The profit-taking came on the first session of the new quarter as investors repositioned ahead of earnings season. July’s reports will determine whether the chip rally resumes or whether the first half was the trade and the second half is the reckoning.

The Dow heading toward a record while the Nasdaq stalls at resistance is the rotation continuing. Four straight sessions of Dow gains with tech selling tells you where the money is going. Traditional sectors are catching the capital that is leaving semiconductor and large-cap growth names. That trade has been working all month and Wednesday extended it.

ADP Missed and Warsh Did Not Flinch

ADP reported private payrolls increased by 98,000 in June, below the 110,000 expectation and slower than May’s revised 122,000. Three consecutive months of decelerating private job growth heading into Thursday’s official payrolls number.

Warsh acknowledged that AI capital spending could eventually boost productivity and ease inflation over time but said the Fed is not ready to base policy on that expectation. He called the AI investment cycle a “boom in capital expenditures” and left it there. He also dismissed political pressure on the Fed. “We’ve been an independent central bank for a very long time. We’re going to be an independent central bank at this moment.”

A softer ADP print on the same day the Fed Chair says prices are still too high. One report is not going to change his mind. Thursday’s number carries more weight.

What to Watch

Thursday’s payrolls report lands in a holiday session and the market is going to read it through what Warsh said today. He called prices too high and gave nothing on July. ADP already showed private hiring decelerating for three straight months. A strong official number on top of that keeps the hawkish positioning intact and the rate hike conversation stays alive into the fall. A miss and the market starts asking whether the Fed’s stance matches the economy underneath it.

The S&P is sitting inside the retracement zone that has controlled the week. The Nasdaq cleared the 50-day but has not been able to get through the resistance above it. The Dow is approaching the record on its fourth consecutive gain with earnings season and the second half starting next week.

Chip stocks selling off after their best first half since 2000 while the Dow keeps climbing is the clearest picture of where the capital is moving right now. Thursday’s number determines whether that rotation accelerates or reverses.

More Information in our Economic Calendar.