Nasdaq Composite Index (NASD.I) & BMO Equal Weight Banks Index ETF (ZEB.TO)

U.S. equity indexes largely advanced over the past week, with the Dow Jones rising 3.21% to 39,086, the S&P 500 up 4.92% to 5,415, and the Nasdaq Composite gaining the most at 6.15% to 17,051. European markets also saw gains, with major indices in Switzerland, France, the UK, and Germany closing higher, though modestly. In contrast, mainland China saw a 1.31% increase, Hong Kong a 0.68% rise, while India and Turkey remained flat at 0.20% and -0.97%, respectively. Eurostat reported a 0.3% GDP growth in both the euro area and the EU for Q2, with annual increases of 0.6% in the euro area and 0.8% in the EU. In the UK, consumer prices rose 2.2% year-over-year, up from 2.0% in June, while France experienced a 0.2% increase in July CPI. In the U.S., the July CPI rose 0.2%, bringing annual inflation down to 2.9%, which could lead the Federal Reserve to cut interest rates in September. Gold fell 0.9% to $2,486.20 per ounce, and West Texas Intermediate crude oil decreased 1.6% to $77.09 per barrel. U.S. commercial crude stockpiles unexpectedly rose by 1.4 million barrels, while gasoline production decreased. The Mortgage Bankers Association reported a 16.8% increase in mortgage applications, indicating a strong rebound in refinancing activity. Overall, it’s been a volatile couple of weeks with markets beginning to digest the recent flash crash, but major asset class indicators remain positive. Many leading sectors are still commanding attention, and small- and mid-cap equities, both in the U.S., Canada, and internationally, are joining the rally. Despite a high wall of worry, the market is progressing steadily, and investors holding top-performing names are being handsomely rewarded for their risk.

In light of the brief global market selloff earlier this month, the shift away from the red-hot tech sector recently, particularly the “Magnificent Seven” stocks, and the pullback in the high-flying semiconductor space earlier this quarter, we are going to examine the tech-heavy Nasdaq Index to see how it has fared during this period and whether a change in the longer-term trend is materializing or if this is just a pullback within a longer-term uptrend.High-growth beta stocks, which dominate the Nasdaq Composite, typically encounter headwinds amid higher interest rates, as illustrated in the chart showing a downtrend from January 2022 to the index’s bottom in December 2022. In early 2023, a change in trend to the upside occurred, with the performance of the “Magnificent Seven” predominantly driving the Nasdaq higher. In early 2024, the upward trend continued as the rest of the tech sector participated, based on the premise that the interest rate cycle had peaked and cuts were anticipated later this year, removing the higher interest rate headwind faced by the tech sector.Let’s examine the Point and Figure chart at a 2% scale to gain insight into whether the recent underperformance has reversed the Nasdaq’s trend to the downside from a longer-term perspective. The volatile market earlier this month triggered a downward column of O’s, resulting in seven O’s. The index is currently at its support area of 15,901.86. Recent strength in the index has the chart close to a 3-box reversal to the upside if the index can close above 17,556.94. Only time will tell if the 3-box reversal materializes and if an upward trend continues, maintaining the longer-term uptrend. The level to watch now is whether the index can hold at 15,901.86. If it doesn’t, it may signal that the pullback to the downside could gain momentum.Further support to the downside below 15,901.86 is at 14,984.68, and below that, 14,120.40. On the upside, resistance is at 17,556.94, which it is close to reaching. If it manages to break above that level, the next area of resistance is at its recent high of 19,004.20. With an SMAX score of 6 out of 10, NASD.I is showing near-term strength against the asset classes.

The BMO Equal Weight Banks Index ETF invests in the Canadian banking industry. The banks have been under pressure ever since interest rates began to rise in early 2022. However, in late 2023, the shift to a slightly more dovish central bank outlook triggered a trend reversal. As mentioned earlier, banks are prime beneficiaries of the end of rate hikes.Examining the attached Point and Figure chart at a 1% scale to see how the shares fared over a shorter time frame, we observe that the Canadian banking sector, represented by the BMO Equal Weight Banks Index ETF (ZEB.TO), was under distribution for nearly two years. While most losses occurred in 2022, the final downdraft, which took the ETF to a new low, came in the October-November 2023 selloff. The shares finally bottomed out in December of last year. However, notice that the distribution phase never took the shares below its long-term uptrend line. In December of last year and January of this year, ZEB.TO reversed trend, and the accumulation phase began in earnest with a strong column of rising X’s (20 X’s) materializing without even a 3-box reversal. Since then, four mild pullbacks occurred in February, May, June-July, and now. This price action has resulted in a tug-of-war between bulls and bears regarding the interest rate path moving forward, with the central banks’ stance on either maintaining higher rates or beginning cuts being debated. With the Bank of Canada already cutting rates twice in the last two months, providing more clarity on interest rate policy, the bulls appear to have won the tug-of-war. Earlier this month, a higher column of rising X’s materialized when the shares hit $36.78 before the short global market volatility ensued a few weeks ago, triggering the ETF into a 3-box reversal (3 O’s). The shares have cleared two prior resistance levels at $32.64 and another at $34.99.The recent high at $37.14 is the next area of resistance, followed by another layer of resistance at its all-time high of $38.27, reached in early 2022 before the interest rate hiking cycle began. To the downside, the shares are now at support of $35.34, which is its 3-box reversal, and below that, $33.96 and $32.64.With an SMAX score of 5 out of 10, ZEB.TO is exhibiting minimal near-term strength against the asset classes.