Nasdaq 100 outlook: Stocks bulls return

US futures track European markets higher
Banks and techs among sectors to watch
Nasdaq 100 looks poised for bullish breakout

US index futures rose along with firmer markets in Europe, which means the major US cash indices are set to open higher with large gaps. Technology and bank stocks will be in focus as these sectors have rebounded sharply in Europe.

Why have stocks rebounded?

Judging by the rallying equity markets in Europe, investor sentiment remained supported as the turmoil surrounding the global banking sector appears to be contained.

On top of this, Alibaba buoyed sentiment in the tech sector after deciding to split into six business units.

Furthermore, the latest consumer confidence surveys in both the US (Conference Board) and Germany (GFK) have come in better than expected. As well as consumers, businesses are also feeling more confident as the German ifo Business Climate survey revealed earlier in the week.

Sentiment in Europe has improved markedly compared to a few months ago, thanks mainly to lower energy prices.

We may also be seeing some bargain hunting for some downbeat stocks, which is an additional reason behind the firmer indices.

Fed rate hike wild repricing continues

As mentioned, the mood in the markets has brightened noticeably since Friday afternoon and that momentum has carried forward so far into this week. As well as stock indices, we have also seen things like crypto currencies and crude oil recover sharply. Authorities on both side of the Atlantic have been quick to reassure investors of the underlying strength in the industry.

So, investors have reduced their high expectations that central banks, led by the Fed, will cut interest rates by as early as June. This explains why the USD/JPY pair has been propelled near 132.50, after just last week falling to below 130.00 handle.

According to analysis by ING, markets moved from pricing in a 24% chance of a hike in May and 88bp of cuts by year-end on Friday to a 47% implied probability of a hike in May and 46bp of cuts by year-end as of this morning.

Will stocks make a more decisive move higher?

Bullish exuberance is limited, for now. Understandably, some investors are having a hard time to make up their minds on the direction of asset prices. Question marks remain over how the bank crisis will play out, and whether the Fed will hike or hold interest rates at the next FOMC meeting. To make things worse, there isn’t an awful lot on the economic calendar this week until Friday when we will get the Fed’s preferred measure of inflation data. All told, the market is basically inside a large consolidation zone, but with a slight bullish tilt thanks to receding fears over banks.

Nasdaq 100 technical analysis

The Nasdaq 100 will be in focus today, as it continues to trade sideways in a narrow range. Will the tech-heavy index be able to stage a more decisive rally, given that it continues to find support on the dips?

Well, that’s how things are looking given that we have not seen any downside follow-through despite the formation of several bearish patterns lately – including that large, inverted hammer candle around former resistance area of 12880 that was formed last Wednesday.

Therefore, the larger “cup and handle” formation still remains valid. This is a bullish continuation pattern but will only complete if and when the market breaks resistance. The fact the handle has a shallower dip than the cup part of price action means the pressure is building for a bullish breakout.

So, a bullish breakout may still be on the cards above 12880ish resistance area, for as long key support around 12465ish is defended by the bulls. If that happens, look out for follow-up technical buying above that zone.

Source : StoneX and TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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