Powell testimony

Fed Chair Powell is to give his usual bi-annual testimony before Congress, so what are the chances he could say something that could move stocks?

What about a rebound?

Stocks are on the back foot for a lot of reasons. But focusing on tech stocks, one of the largest challenges they face is tighter Fed policy. Increasing credit costs restricts the amount of capital available to take on bets on stock prices over earnings potential. For any traders in the Nasdaq looking for some relief, the Fed could be instrumental if there is to be a turnaround any time soon.

After the Fed ramped up tightening at the last meeting, there is little chance that it will dial back on policy. At least, not until Q2 figures are released in about a month. If anyone is hoping for an announcement of a loser policy over the next couple of days, they are likely to be disappointed for several reasons.

What's changed?

Since the Fed met just last week followed by an extensive press conference, there likely isn't much new for Powell to say. He will be presenting first in the Senate and then in the House; and in both instances likely to be questioned predominantly by lawyers. There are likely to be a lot of questions about inflation when it can be expected to come under control, and some politicians admonishing to do "do something", with an eye more on their re-election campaigns which are kicking into gear.

The bottom line is that Powell's message is likely to be the same as he gave less than a week ago.

How low before Q2?

Nasdaq’s open last week left a lot of traders scratching their heads whether an attempt to fill the gap materialises this week or not. Below the 50% and further from the 38.2% Fibonacci retracement of the 6610-16750 leg, consensus between technical analysts hints at bearish bias. There lies the golden pocket of 10450, which interestingly enough, is where the 200-week average can be observed. The cluster is a magnet zone and losing it could have greater implications for tech stocks.

Below the round 10000 support, the index could find support at February ‘20’s all-time high. Back then prices had reached a record high and tumbled 20% lower where a massive bull run took off of the 6610 low.

Although the 50% is not lost amid a confirmed breakout as of yet, the medium-to-long-term sentiment is under threat of changing hands. Especially if there will be no attempt at the gap and the 38.2% Fibonacci at 13860 and 12880. Momentum shows no divergence either, a preferred precondition to reversals.

Source: Spreadex trading platform

Key takeaways

Tech stocks are being hurt by the Fed’s policy, but there's a chance that the markets will turn around soon if we see some numbers from Q2. So, Powell will likely reiterate what he said last week, as he will probably be questioned in a way that has more to do with politicians' re-election campaigns than the economy.