Nasdaq 100 analysis: Stocks running out of bullish catalysts after big rally

• Nasdaq 100 analysis: Fed officials likely to dismiss talks of speedy rate cuts
• Much of macro concerns remain as earnings season winds down
• Nasdaq 100 technical analysis: Bearish trend being tested

The optimism we saw last week was all based on signs of peak interest rates in the US. We had a few data misses and comments from Fed officials to suggest that the tightening cycle is now done. Some investors have even started to look forward to interest rate cuts, and this was reflected in a sharp fall in bond yields. To give you an idea of what kind of a week it was, the Dow enjoyed its biggest weekly gain since October 2022, while the S&P and Nasdaq had their best weeks since November 2022. While those gains are impressive, so far, we haven’t seen any follow through. Investors are perhaps wary of the fact there are no major bullish catalysts this week, while the Fed is likely to throw caution to the wind with policymakers likely to dismiss talks of speedy interest rate cuts from the US central bank. Additionally, the US earnings calendar is winding down, with more than 400 S&P companies having already reported their results.

Nasdaq 100 analysis: Fed officials likely to dismiss talks of speedy rate cuts

So far, we have only seen modest signs of a slowing jobs market and a downturn in the economy. So, I think it is far too early to think about rate cuts, and this is something Fed officials are likely to hone in on at their upcoming speeches. In fact, Minneapolis Fed President Neel Kashkari, who has been quite hawkish in recent years, came out to say that it is far too early to declare victory over inflation. Kashkari thinks that the drawback of over-tightening monetary policy is less damaging to doing too little. But the Fed has done a lot already and they are highly unlikely to tighten their belts again. What they can do, however, is keep monetary policy tight for an extended period of time.

Kashkari is set to speak again on Tuesday, while we will hear from several other FOMC officials including Goolsbee, Barr, Waller and Logan. Fed Chair Jerome Powell will deliver a speech on Wednesday. Let’s see what the key takeaway point will be from these speeches. The economic calendar is quieter otherwise, with UoM Consumer Sentiment on Friday being among a handful of key data hights lights this week.

Much of macro concerns remain

Last week’s rally was very impressive and came in the face of a growing list of macro concerns, including high yields, growth concerns and the Middle East situation. The recovery has left some investors wondering whether the markets will be able to continue climbing a wall of worry.

For what it is worth, I think that stocks were due for a bounce after a deep sell-off anyway, and so they may struggle to extend gains from here. Much of the macro concerns that had held back the markets in the last few months are still prevalent. Therefore, I wouldn't be surprised if the markets turned volatile again. It may be far too early for investors to become optimistic about central bank policy loosening. The Fed's rate cuts could be several quarters away. Monetary policy is also going to remain tight for a long period of time in other important economic regions like the Eurozone and the UK.

Additionally, while oil prices have fallen back after a surge following the flare up of the conflict between Israel and Gaza at the start of last month, the dangers remain of a wider conflict in the Middle East region. If that unfortunate situation were to arise, the potential impact on the markets could be huge.

Nasdaq 100 technical analysis

Source: TradingView.com

The Nasdaq has reached a key technical resistance area, starting around 15150 to about 15220. This area is where things started to unravel for the bulls back in October. Additionally, and more to the point, we have a bearish trend line coming into play here, too. This trend line has been derived from connecting highs made in July, September and October. So, it is a well-established trend which should not be ignored by the bulls looking to charge after last week’s big rally.

In terms of support, the key area is below 15,000, specifically in the range between 14850 to 14960. This area had acted as both support and then resistance in October, before we broke through it in early November. So, the onus is now on the bulls to defend this area on any potential retests from above. Failure to do so would be a bearish development.

-- Content created by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R