Nasdaq 100 Soars Despite Rally in Yields, VIX in Freefall Ahead of Fed. Now What?

NASDAQ 100 OUTLOOK:

• Nasdaq 100 rallies and jumps to its highest level since early February despite the surge in Treasury yields
• Bullish momentum is reinforced by speculation that the worst of the banking sector crisis is over
• All eyes will be on the Fed monetary policy announcement on Wednesday

Most Read: Fed Preview – US Dollar and S&P 500 Could Take Diverging Paths After FOMC Decision

The Nasdaq 100 soared on Tuesday, rallying 1.42% to 12,741, despite a sharp rise in U.S. Treasury yields. Equity market gains were broad-based in the tech space amid risk-on mood ahead of the FOMC decision, with the VIX, known as Wall Street’s fear gauge, plunging more than 11% and posting its worst two-day drop since 2022.

Positive sentiment was bolstered by speculations that the worst of the recent banking sector turmoil is over thanks to coordinated actions by government authorities to shore up the banking system, including emergency central bank lending and the Treasury’s pledge to protect smaller lenders if necessary.

For bullish price action to continue, the Federal Reserve will have to convince investors that it will do what’s necessary to prevent systemic risks from propagating, even if that means pivoting temporarily from its inflation fight. That said, we’ll have more information about the policy outlook on Wednesday when the Fed announces its March decision and releases it summary of economic projections.

In terms of expectations, policymakers are seen raising interest rates by a quarter of a percentage point to 4.75%-5.00%, although some Wall Street analysts expect no change in borrowing costs following recent developments with U.S. regional banks. Regardless of tomorrow’s FOMC decision, guidance and commentary on financial stability may be more important in setting the near-term market tone.

Focusing on technical analysis, the Nasdaq 100 is currently probing a key resistance area in the 12,900 region, where January’s highs converge with the 38.2% Fibonacci retracement of the November 2021/October 2022 slump. If this area is breached on the topside, bullish momentum could accelerate, setting the stage for a move towards 13,700.

On the flip side, if the tech index is rejected from current levels and resumes its descent, initial support lies at 12,330. Below that, the 50- and 200-day simple moving averages come into play.

NASDAQ 1OO TECHNICAL CHART

Nasdaq 100 Futures Chart Prepared Using TradingView