The Nasdaq bounced back after a drop caused by the NFP report, with overall upward momentum due to expectations of rate cuts from the Fed. The market is expecting three rate cuts by the end of the year, totaling 68 basis points. There is also an 8% chance of a 50 basis point cut in September, depending on a soft CPI report. If the CPI report is soft, it could push the stock market to new all-time highs. Even though analysts have negative forecasts, the market remains hopeful about future growth. This positivity stems from expected rate cuts and a belief that the economy isn’t as dire as it seems. The uncertainties from earlier in the year related to political policies are fading, and potential rate cuts could boost economic activity.

Analyzing The Daily Chart

On the daily chart, the Nasdaq is showing a range but leans upward, trading close to all-time highs. Buyers are increasing bullish bets, aiming for new highs, while sellers are preparing for a drop to the 23,050 level. In shorter timeframes, there is a slight upward trendline that buyers are using to push higher, while sellers are ready to act if it breaks down. Key economic reports are coming, including the US CPI and Jobless Claims, followed by the University of Michigan Consumer Sentiment report. Strong expectations for Federal Reserve rate cuts are supporting the market. The latest Consumer Price Index (CPI) report for August 2025 came in softer than expected today, reinforcing these dovish sentiments. The Bureau of Labor Statistics reported a monthly core CPI increase of just 0.1%, which is below the 0.2% consensus forecast. This outlook supports a bullish market environment, making long positions appealing. For derivative traders, buying call options on the Nasdaq 100 index (NDX) or related ETFs like QQQ could be a primary strategy. The CBOE Volatility Index (VIX) is around a low of 13, resulting in relatively cheap option premiums that offer an attractive risk-reward scenario. The chances of aggressive rate cuts have increased after the soft inflation data. According to the CME FedWatch Tool, the market now sees over a 20% chance of a 50 basis point cut this month, rising from just 8% yesterday. This positive sentiment is likely to continue supporting asset prices in the near term.

Evaluating Market Risks And Strategies

However, with trading occurring near all-time highs, there’s a risk of a market reversal. Traders should consider hedging their bullish positions by buying out-of-the-money put options. This serves as a low-cost insurance against a sudden market downturn if investor sentiment shifts unexpectedly. The 23,050 level on the Nasdaq is a crucial support area. A more cautious strategy involves selling cash-secured puts with a strike price at or slightly below this level. This approach allows traders to collect premiums while setting a price at which they’d be willing to buy into the market during a dip. We are moving beyond the economic uncertainties believed to be caused by government policies in the first half of 2025. The upcoming University of Michigan Consumer Sentiment report will be vital in determining whether this optimism is shared by the public. A strong result would further back the case for ongoing market gains. This situation feels reminiscent of late 2019, when the Fed cut rates to support a slowing but still-growing economy, resulting in a robust market rally. Implied volatility is a crucial metric to monitor. If the VIX climbs back towards the 17-18 range, it could indicate that the market is starting to factor in more risk. Create your live VT Markets account and start trading now.

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