The Surest of Things

Bulls are certainty feeling one's oats today, as the ambitious rate cut by The Fed yesterday brought a Wall Street cheer overnight in the futures market and led to a sizable gap higher today. We do have a Bank of Japan meeting underway, which could shake things up a bit tomorrow. 

However, the overwhelming sentiment currently seems to be that we are seeing a can't-miss rally in risk underway with only blue skies and soft landings ahead. 

On the Nasdaq-100 Index daily chart, below, most other Nasdaq-related charts look the same: A mild overshoot of the late-August highs today, which happened to be a significant price level dating back to June (see arrows). 

While no two cycles are exactly alike, we know the 2000 (2001 cuts, specifically, and 2007 tops also saw big rate cuts early on which many perceived as the next bullish catalyst back then, just like they are now. 

In reality, the rate cuts often usher in a recession which surprises many who assumed we have evaded that fate. In this particular cycle, I had thought the nasty inflation we saw in 2022 and 2023 would pull forward the recession and bear market, but instead we saw the BTFP bailouts and the AI speculative fervor as market players laughed off sticky inflation. 

Put another way, once this knee-jerk celebration is exhausted, a textbook historical bearish setup emerges.

The NDX daily chart illustrates that, headed into the quarterly options expiration tomorrow, we may have already exhausted the rate cut jubilee into tough prior resistance.