The NASDAQ 100 has been a standout performer in recent weeks, fuelled by AI enthusiasm, strong earnings from tech giants, and easing inflation pressures. But with macro data showing cracks in US growth, sentiment turning cautious, and price nearing overbought levels, the question is whether this rally has room to run or is due for a correction. This analysis explores the current setup and presents a high-probability trade idea with an exceptional risk-reward profile.

Fundamental Analysis

The fundamental backdrop for the NASDAQ 100 is mixed. US GDP growth has contracted by -0.3% in the latest quarterly release, down from a healthy 2.4% previously. Annualised growth has also softened to 2.0%, reflecting the mounting pressure from tighter financial conditions. While earnings from big tech have impressed—most notably from Nvidia, Microsoft, and Amazon—forward guidance has turned more cautious, citing slower consumer demand and rising input costs. Clearly, those watching NASDAQ carefully should keep an eye on these figures.

At the same time, inflation has cooled to 2.4%, bringing the Federal Reserve closer to a potential rate cut, now tentatively priced in for Q3 2025. A dovish shift would be supportive of high-valuation growth stocks, but the Fed remains cautious, citing sticky core services inflation and a still-tight labour market.

On balance, fundamentals are neutral to mildly bullish. Structural themes like AI remain intact, but macro risks and slower earnings momentum prevent a full-on bullish call.

Technical Analysis

The daily chart of the NASDAQ 100 reveals a strong bullish trend. Price has broken above the Kumo (Ichimoku cloud) and is trading well above the Tenkan-Sen (20,657) and Kijun-Sen (19,531). The Chikou Span is clear of price and cloud, confirming momentum. The MACD is strongly bullish, with a wide gap between the MACD and signal lines, and a rising histogram. RSI is currently 69.23, nearing overbought territory. Volume is declining slightly into recent highs, which could indicate buyer exhaustion; keep these factors in mind when looking at NASDAQ movements.

Zooming into the 1-hour chart, we see a bearish Tenkan-Kijun cross has occurred. Price is still holding above the cloud, but the Kumo is narrowing. The MACD has turned negative, and RSI is falling below its moving average—signs of short-term weakness. The next support levels are the Kijun-Sen at 21,267 and Senkou Span A at 21,325. Taken together, the longer-term daily chart remains bullish, but the 1-hour chart suggests a near-term pullback is probable before trend continuation.

Sentiment Analysis

Institutional sentiment from the COT report remains mildly bullish but fading, with asset managers trimming long exposure. Leveraged funds are more neutral, reflecting uncertainty. Options market activity shows a rising put/call ratio (1.08) and slightly higher implied volatility (18.5%), indicating increasing defensive positioning. Retail sentiment is also cooling, with outflows from QQQ ETFs, and a visible drop in online engagement around the rally outside AI megacaps. Sentiment is best described as neutral to slightly bearish in the short term, with markets waiting for a new macro catalyst that could impact NASDAQ.

Trade Setup: Short NASDAQ 100 (NAS100)

With price extended on the daily timeframe and the 1-hour chart showing clear signs of weakness, there’s an opportunity to short the NASDAQ 100 on a pullback toward support.

Entry: 21,365
Stop Loss: 21,492
Take Profit: 20,657

Risk: 127 points
Reward: 708 points
Risk-Reward Ratio: 1:5.57

This trade aligns with the overbought daily RSI, bearish intraday momentum, and cooling sentiment. It targets a retest of the daily Tenkan-Sen while maintaining a tight stop above resistance.

Conclusion

The NASDAQ 100 continues to ride strong bullish momentum, but cracks are forming beneath the surface. With weakening macroeconomic data, defensive institutional flows, and technical overextension, a short-term pullback looks increasingly likely. The trade setup outlined here offers a rare opportunity to capture downside with limited risk and significant reward potential.

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