Dovish comments by ECB President Mario Draghi likely helped U.S. futures gap up to 1622 on Thursday, even as markets were closed for July 4th. In recent weeks, we have seen innumerable sizable overnight gaps. On a standalone basis, that type of action is consistent with a corrective and indecisive market. But we know the multi-year trend remains firmly higher and can resume at any time. Indeed, it will be interesting to see how this gap higher in the futures stands up to a widely-watched nonfarm payrolls number on Friday.
With that in mind, I want to circle back to a post I wrote on May 11th, in the midst of that melt-up where it seemed as though overhead resistance was routinely eschewed by many. In that post, titled “Back to Little Bighorn,” I argued that the Nasdaq Composite Index would likely see major overhead supply begin to assert itself from the year 2000. This was sacred ground, not relatively minor resistance, and thus there was serious, if not legendary, supply to be negotiated regardless of the euphoria of the moment.
Hence, the idea was to look for at least some reckoning, even if bulls eventually did overtake the 3,400-3,500 area again, once and for all.
Updating that monthly chart, below, we can see the Nasdaq has yet to see any type of violent rejection away from “Last Stand Hill.” The pause has been mild, but is still ongoing and needs to be watched closely for any changes in character. Simply running into major overhead supply need not mean a major top. But you can see over the past six weeks of trading how it has asserted itself and been punishing (or at least less rewarding with higher risks) to the types of plays which worked much better earlier in the year.