Nasdaq cheered up, but how long will it last?

After setting a two-years low in the middle of June the Nasdaq index formed a small upward trend. According to this trend by the current moment it has managed to grow to 14%, the important range 12800-12900 is closer. Will Nasdaq go even higher or upset investors?

An interesting trend may be seen within the last few weeks: as soon as the rate of return of U.S. bonds went down, the stock market began to grow. In the middle of June the U.S. 10-Year Bonds’ return exceeded 3.4%, now it has dropped below 2.8%. Although the Fed rate continues to grow (yesterday It was raised by 0,75%, the current rate is 2,5%), long-term expectations have noticeably changed towards a lower rate level.

Apparently, the old rule “the worse the economy feels, the better the stock market lives” starts to work. During the acute pandemic phase investors' thoughts were the same: the worse economic statistics, the more financial support from the Fed and more liquidity for stock growth.

This year the U.S. economy has shown a slowdown in growth, and there have been no clear signs of a recession. However, everything may change today: the first estimate of US GDP for the second quarter will be presented. Market participants expect an increase of 0.5%. It’s interesting to watch the market reaction:

1) in case the presented report exceeds expectations, another Nasdaq breakthrough may be seen. However, the Fed will interpret continued GDP growth as a reason for a further increase in the rate, which will further lead to a market fall.

2) in case GDP declines (for example, the Federal Reserve Bank of Atlanta expects a 1.6% drop), formally it will be considered the beginning of a recession. An acutely negative initial reaction is likely to be, and further movement will depend on comments from American officials.

Following trade strategies may be suggested:

1) If US GDP has grown by more than 0.5%. Sell Nasdaq in the 12800-12900 range. Take profit – 12200. Stop loss – 13100.

2) If US GDP has declined. Sell Nasdaq at current price. Take profit – 12200. Stop loss – 12800.

3) If US GDP has grown, but the growth is less than 0.5%. There may be no obvious reaction, it’s better to refrain from a deal.

Also, traders, at their discretion, can use the Trailing stop instead of the fixed Stop loss.