The opinions expressed in this report are those of Inspirante Trading Solutions Pte Ltd (“ITS”) and are considered market commentary. They are not intended to act as investment recommendations. Full disclaimers are available at the end of this report.

Executive Summary

In the July 19 report, Inspirante Trading Solutions examines the recent move in major asset classes, notably the stock market euphoria, through the historic lens of Nasdaq-100/Russell 2000 ratio, reckoning if the market gets too ahead of itself.

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The reminiscence of the 2000s

Upcoming economic events (Singapore Local Time):






Fed Interest Rate Decision



ECB Interest Rate Decision



U.S. GDP (Q2)



BoJ Interest Rate Decision



U.S. Core PCE (June)



Eurozone HICP (July)



U.S. ADP Employment Change (July)

Investors will pay close attention to the central bank meetings in the next two weeks. We may see increasingly divergent paths between the Fed, the ECB, and the BoJ, as each contends with its unique set of challenges.

Markets in focus

Figure 1 E-mini Nasdaq-100 Index Future

Looking from a longer timeframe, the Nasdaq-100 is just a hair’s breadth away from its all-time high (ATH) registered in late 2021. The momentum behind the current rally, as indicated by the weekly Relative Strength Index (RSI), appears to be nearly on par with the initial rebound from the lows of the 2020 pandemic.

Figure 2 Nasdaq-100 Index vs. Russell 2000 Index ratio

However, the stock market rally did not stem from broad participation, as we see the ratio between Nasdaq-100 and Russell 2000 surpassing the 2020 high at 7.87 and reaching levels reminiscent of the Dotcom era, up to 7.98. Back in 2000, following a sharp divergence between tech-heavy Nasdaq-100 and small-cap Russell 2000, a stunning reversal took place.

Figure 3 U.S. Dollar Index (DXY)

After coiling for eight months inside a descending triangle, the U.S. dollar finally broke the support, going below the 100 mark.

Figure 4 Copper Futures

Copper has broken out from a seven-month bull flag on the U.S. dollar weakness. However, all is not clear yet, as the 4.0 level is a strong overhead resistance that put the recent breakout in question.

Figure 5 Soybean Oil Futures

Soybean oil has exhibited a textbook example of a Head-and-Shoulder (H&S) failure pattern. Following a false breakout, the price quickly rallied above the neckline with sustained momentum. Based on classical charting principles, it has the potential to climb at least to the shoulder level.

Our market views

What an unusual market environment we are witnessing right now. Based on the CME FedWatch Tool, we would see another 25bps rate hike for the upcoming July FOMC meeting, marking the end of this tightening cycle. Interestingly, the Fed Funds futures market suggests the probability distribution for some substantial rate cuts by the end of 2024.

June’s Non-farm Payroll data revealed an addition of 209,000 jobs, falling short of expectations, accompanied by a downward revision of May’s figures. The red-hot labor market, one of the Fed’s top concerns, is showing signs of cooling off. The recent U.S. inflation data reinforces this trend. Both headline and core CPIs have been weaker than expected, signaling a cooling of consumer prices. After two challenging years, it seems the U.S. central bank has finally succeeded in reining in inflation. The market response has been a mix of relief and optimism. 

Technology and growth stocks, which typically thrive in an accommodative policy environment, have been front-running this for quite some time. The Nasdaq-100 has surged by over 46% since the beginning of the year, nearing its record high. Even more notable is their outperformance relative to other sectors, harking back to the heights of late 2021 (Nasdaq-100 vs. Dow) and the Dotcom era (Nasdaq-100 vs. Russell 2000).Market euphoria, indeed!

The cooler-than-expected CPI print has arguably dealt a blow to the U.S. dollar, catalyzing some impressive short-term moves in the commodities, particularly precious metals. We hear more voices calling for an all-time high for gold. Surprisingly, even base metals like copper, whose demand is closely tied to global macroeconomic activities, are riding this upward wave. 

Fresh from the Trading Room’s readers should be aware of this. Recognizing when the market gets too ahead of itself has been a recurrent theme of this content series. We believe we’re witnessing another such instance. Logically, the path from where we are to where the market anchors its optimism – an aggressive unwinding of the rate hikes by the Fed – has to be fraught with economic turbulence. Why would the Fed hurry to cut if the economy and stock market are flourishing and the labor market remains robust? Isn’t a severe recession or similar adverse event a necessary precursor for such drastic policy reversals? This spurs us to reflect on the recent moves in various asset classes. Perhaps, the anticipated new all-time highs could turn out to be mere mirages in the desert – tantalizingly close yet frustratingly out of reach.

How do we express our views?

We consider expressing our views via the following hypothetical trades1:

Case study 1: short Nasdaq-100 to Russell 2000 ratio

We would consider taking a short position on the Nasdaq-100 to Russell 2000 ratio. This strategy would bear fruit in two scenarios: if the Nasdaq-100 retracts more than the Russell 2000 during an equity market downturn, or if the Russell 2000 outpaces the Nasdaq-100 during an equity market upturn. We would short one Micro E-mini Nasdaq-100 Index futures contract (MNQU3) at 15,700 and simultaneously long three Micro E-mini Russell 2000 Index futures (M2KU3) at 1,960, at the current ratio of 8.01 and approximately equivalent notional amount. Each point in the Micro E-mini Nasdaq-100 Index futures contract is USD 2, giving the short leg a notional value USD 31,400; in the Micro E-mini Russell 2000 contract, it is USD 5, giving the long leg a notional value of USD 29,400. Looking at Figure 2, if the ratio reverses from the current level, it has the potential to fall back to 6.0 and lower.

Case study 2: short copper futures

We would consider taking a short position on the copper futures (HGU3) at the present level of 3.92, with a stop-loss above 4.08, which could bring us a hypothetical maximum loss of 0.16 points. Looking at Figure 4, if the overhead resistance holds and the recent breakout is rejected, the copper price has the potential to fall back to 3.5, a hypothetical gain of 0.42 points. A copper futures contract represents 25,000 pounds of copper. Each point move in the copper future contract is USD 25,000.

1 Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.


The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Inspirante Trading Solutions Pte Ltd (“ITS”). CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.



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