The NASDAQ 100 faced its toughest day in three weeks, but there’s potential for it to rise by 11% to reach the long-term resistance level at 29,000. Key factors for this potential increase include expected rate cuts from the Federal Reserve, earnings reports from major tech companies like Alphabet and Microsoft, and the ongoing excitement around AI. Before moving upward toward the year-end, we expect a retest of the 24,500 support level. Financial markets are also showing mixed trends: the EUR/USD has dropped to a three-month low, and the GBP/USD has fallen to a seven-month low due to financial concerns. Additionally, gold is dipping below $4,000, and Bitcoin is facing uncertain demand.

Strategic Entry Point

The recent decline in the NASDAQ 100, the largest in three weeks, presents a strategic entry point instead of a sign of a downturn. We anticipate a retest of the 24,500 support level soon. This short-term weakness is mainly due to profit-taking after the index rose over 8% in a strong quarter. The Federal Reserve’s shift to a more relaxed monetary policy is the main driver for a potential year-end rally. After keeping rates above 5% for most of 2024, the recent quarter-point cut and recent inflation data showing a CPI of 2.8% suggest more cuts are expected in 2026. This easing financial environment is historically good for tech stocks focused on growth. Earnings reports from major companies like Microsoft and Alphabet showed strong growth in AI-driven cloud services, but their cautious outlook has contributed to the current downturn. We believe this is a temporary sentiment change, as the growth of AI infrastructure continues to speed up. Any weakness among key tech stocks could be a chance to invest for future gains.

Immediate Term Strategies

In the short term, we might consider protective strategies while the index looks for a bottom near 24,500. Buying put options that expire soon or selling out-of-the-money call spreads can help protect against further losses. The recent rise in the VIX to over 18—the highest since August—reflects current market uncertainty and makes these options pricier. Once we see support solidifying around 24,500, we should shift our focus to bullish positions aimed at the 29,000 level by January 2026. This might involve buying call options or creating bull call spreads to take advantage of the expected 11% increase. Traditionally, markets often enjoy a strong “Santa Claus rally” in the last months of the year, a trend that showed strong results in late 2023, with the index climbing nearly 10% in November and December. Create your live VT Markets account and start trading now.

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