Nasdaq 100 futures pointing to a short-term rally before a potential downturn

Stock futures, in general, rose after the Nasdaq Index posted its best daily return since July during yesterday’s trading session on October 17. Meanwhile, stock futures continued their ascent earlier today, October 18, coming off a volatile week of trading. 

The rally was primarily led by solid earnings posted by the financials, often deemed as bellwethers of the economy, indicating that it’s not all gloom and doom in the markets. Additionally, the UK markets rebounded on a U-turn by the UK finance minister on tax cuts, adding more fuel to the rally. 

However, it seems that the rally may not stand on a firm foundation, as the CEO of MOTT Capital, Michael J. Kramer, shared a chart of Nasdaq 100 futures on Twitter on October 18. Namely, the chart shows the futures touching the lower Bollinger band, after which a rally to the 20-day moving average ensues, and the rally petters off after that.  

“The last few times the Nasdaq 100 futures touched the lower Bollinger band, we bounced back to the 20-day moving average, and that was the end of the rally,” he noted.

Signal watching 

Investors are keeping their eyes on the markets, looking for signals that the stock market has bottomed and a new rally may be starting. On the other hand, analysts are not so sure that the market is yet out of the woods. During CNBC’s Fast Money show, analyst Guy Adami claimed that this jump looks like a classic bear market rally.    

“This looks remarkably like the middle of June this year, when we went on basically an 18% rally, from, I think, the 16th of June to the middle of August. Now, I don’t think we’ll see an 18% rally, but I think this will be one of those classic bear market rallies with a lot of people scratching their heads.”    

Earnings season

While earnings season may be a double-edged sword, the initial bank earnings were positive; if that continues with financials and spills over into other firms’ reports, the rally may continue past the analyst expectations. 

On the other hand, bad news from major firms in terms of earnings and full-year guidance could prematurely stop the rally and see the markets head down yet again.

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