Tentative Bullish Setup Emerges as Technical Signals and a Limited Oil Spike Suggest Risk-On Sentiment Return

The market remains volatile, driven by headlines surrounding escalating tensions between Israel, the United States, and Iran, with risk assets showing a strong inverse relationship to surging oil prices. However, similar to the Russia and Ukraine conflict, investors are gradually becoming desensitized to geopolitical shocks and shifting focus back toward fundamentals. The recent spike in oil appears to be driven more by temporary transportation bottlenecks than by long term supply and demand imbalances, as producers actively explore alternative routes. From a technical perspective, risk assets are beginning to show signs of stabilization and a potential rebound from current levels, supported by the ongoing AI boom. At this stage, it may be more prudent to adopt a tentatively bullish stance rather than chase downside momentum too late. Here is why.

Despite the S&P 500 remaining in a downward trend, with MA3<MA7<MA10 aligned bearishly and a clear lower high, lower low structure, there are early signs of stabilization. The index has finally halted its four day consecutive decline, with buying interest starting to return. Importantly, it has managed to hold above the short term support level around 6628, while the short term moving average begins to rebound from recent lows. Two key signals should be closely monitored. If the MA3 can rise and break above the MA7, it would indicate strengthening momentum and a potential recovery in confidence, likely encouraging renewed buy the dip activity. As long as the index holds above support, the probability of renewed panic selling remains limited.

The Nasdaq 100 presents a more constructive outlook. As previously noted, the technology focused index has consistently held above its medium term psychological support level, reflecting relative resilience. This strength can be attributed to the sector's lower sensitivity to rising oil prices and the continued reinforcement of the AI growth narrative. Structurally, while the index has pulled back from recent highs, it remains less damaged and better positioned to lead a rebound, particularly if mega cap technology regains momentum. Expectations surrounding Nvidia's potential to generate one trillion dollars in AI chip revenue through 2027 could serve as a powerful catalyst for the sector. The moving averages are flattening, but are beginning to turn upward. If this structure becomes clearer, it would signal improving momentum and strengthen the bullish case. Overall, technology continues to offer a more compelling upside trigger compared to the broader market and may act as a relative safe haven given its strong support base.

Taken together, the market tone remains cautious but increasingly constructive. Technical signals suggest that upside potential may outweigh downside risk at current levels, especially given the Nasdaq 100's relative strength. While the S&P 500 still requires further confirmation, the overall setup is becoming more encouraging. From this point, the risk reward profile appears to be gradually shifting in favor of a rebound rather than continued decline.

Oil remains a pivotal variable for risk assets, as any sharp increase could quickly dampen sentiment, particularly with ongoing uncertainty surrounding Iran. Conversely, a decline in oil prices could trigger a recovery in equities by signaling easing tensions and a more stable outlook. WTI crude oil has once near $120 per barrel following speculation tied to disruptions in the Strait of Hormuz, but prices quickly retreated and are now trending upward at a slower pace while remaining below that peak and holding above $90. This pattern suggests that the recent surge may be largely short term, with previous spikes effectively capping further upside.

Several factors support this view. First, the disruption is primarily a logistical bottleneck rather than a structural imbalance, and alternative transportation routes are being explored. Second, although tensions remain elevated, Iran may have limited capacity to escalate further, while the United States is unlikely to deepen involvement significantly as political pressure builds domestically, increasing the likelihood of eventual negotiation. Third, much of the recent volatility appears driven by speculation rather than fundamental shifts, with fear pushing prices away from intrinsic value before rationality returns.

Gold and silver have recently moved in tandem with equities, as rising oil prices pressure rate cut expectations despite political developments surrounding the Federal Reserve leadership. However, the baseline assumption for monetary policy may remain unchanged, as oil related uncertainty appears temporary. The SPDR Gold Shares ETF (GLD) currently shows an RSI of 33, the lowest level since early February, when heavy positioning led to a sharp correction. This suggests that current levels may present an opportunity. Dollar softness and continued central bank demand provide support, while a potential decline in oil could act as a catalyst. Silver deserves particular attention due to its dual role, benefiting not only from monetary dynamics but also from industrial demand driven by the expansion of AI data centers.

In conclusion, while geopolitical headlines continue to dominate short term market movements, underlying dynamics are beginning to shift. Technical stabilization in major indices, combined with a potentially capped oil trajectory, suggests that downside risks may be gradually diminishing. At the same time, resilient technology fundamentals and the ongoing AI investment cycle provide a strong foundation for recovery. Precious metals also offer strategic value as macro uncertainty evolves. Although risks remain, particularly from unexpected escalation, the balance of probabilities is tilting toward a tentative rebound. Investors should remain selective, monitor key technical signals, and be prepared to adjust positioning as sentiment transitions from fear driven volatility to a more fundamentally anchored outlook.