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The Nasdaq index has finally started to recover after Federal Reserve Chair Jerome Powell eased concern the central bank will embark on a more aggressive pace of tightening.
As expected, the Federal Open Market Committee voted unanimously to increase the benchmark rate by a half percentage point. However, stock traders reduced their bets on a large June hike after Powell that the Fed was not weighing an even larger hike of 75 basis points in the months ahead.
During his press conference Chair Powell said that a larger rate hike is “not something that the committee is actively considering.” The S&P 500 rose 3%, Nasdaq 100 jumped 3.4% while the Dow Jones Industrial Average gained 2.8% at the close of the Wall Street bell.
Hope now exists that a meaningful price bottom has formed after the Nasdaq bounced hard from the 12,800-support level. The near 800-point bounce is certainly encouraging.
Going forward, a series of daily price closes back above the 13,800 level would be a strong sign that bulls are now back in control, and this current recover has legs to continue on.
Traders sentiment towards the Nasdaq is very bearish. This is very encouraging for the current recovery, as the retail crowd is typically on the wrong side of the trade when new trends emerge.
I think we could see the Nasdaq starting to rally hard if traders remain wholesale bearish towards the leading US Tech index over the coming days and weeks.
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The Nasdaq index has formed significant amounts of bullish price divergence on the Relative Strength Index. The divergence begins around the 14500 level.
If the index manages to break the 14000 level it may need to return to the 14500.00 level in order for the bullish divergence to then be quickly reversed.
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The Nasdaq index is currently bearish in the medium-term despite the immediate price correction on the 4 Hour chart. A move above the 14,250 level is needed to change the price trend.
The possibility for movement to the upside is highly probable. Bulls may need to break above 13,800 near-term resistance to see further gains to the upside.
However, to cement a possible invalidation of a head and shoulders pattern, a move above the 15,200 level is required.
