The NASDAQ has formed a strong overshoot above a key resistance level, and I think there is a strong narrative for a melt up in the stock market. However, I think both the bullish and bearish narrative would have some downside over the next few weeks. I can see NDX dropping to around $17,500 to retest the resistance line in an attempt to flip resistance into support. If NDX manages to flip resistance into support then I would consider the possibility of a melt up if the economic conditions look better. It is also important to consider the possibility of a steep pullback with much more downside. For now I’m bearish and I will remain flexible as we gather more data over the next few weeks.
The current target rate is 525-550 basis points (bps), and the market anticipates two possible outcomes. There is a 63% probability of a rate cut to 475-500 bps, indicating that most market participants expect easing monetary policy. However, there remains a 37% probability of maintaining the rate at 500-525 bps, which, though lower, signals uncertainty about whether the Fed will take a more dovish approach. A 50 basis point cut would typically be seen as bearish for the dollar, as it reflects concerns about slowing economic growth and may signal deeper issues in the economy. Such a cut would imply the Fed’s focus is shifting towards stimulating the economy, possibly due to inflation falling below target or a potential recessionary outlook.
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