The market direction bounce yesterday was purely technical in nature. The disappointing part is that at present it looks like the bounce could be just a one day jump. Normally in bull markets bounces last more than one day before selling lower. In Bear Markets bounce backs can last for several days to more than a week before collapsing again. That bounce back in bear markets often traps a lot of investors. That is the nature of bear markets. This market at present is a bull market and normally we get a bounce of more than a day. The problem is the NASDAQ. Let’s take a look.
NASDAQ Market Direction Outlook Intraday
The 2 month daily chart below shows the problem with the NASDAQ. The NASDAQ is attempting to recover to 4000 level which is pivotal to the NASDAQ being able to get momentum back to the upside. Yesterday saw a small gain but if you look at the past three days in the chart below you can see that yesterday’s gain did not exceed the prior day’s sell-off in the NASDAQ. This morning the NASDAQ broke more decisively below 4000. That break will have investors sitting nervously on the sidelines trying to decide whether to sell-out. It will become self-fulfilling of course. As the NASDAQ breaks 4000 more sellers will emerge and they will help to push the NASDAQ down to the 200 day exponential moving average (EMA). If that breaks, even more sellers will appear.
All the technical indicators below are pointing negatively lower for the NASDAQ. At the same time however, the indicators in general are extremely oversold after such heavy selling over the past several trading days. With this being a shorter trading week many investors will want to move to the sidelines ahead of the upcoming long Easter weekend. That means taking money out of the market, which means more selling and weakness in stocks.
Momentum is strongly negative as is MACD. The Rate Of Change however is signaling that a change in direction is about to occur. That does not mean tomorrow but it could mean by early next week.
The Slow Stochastic and Fast Stochastic are both extremely oversold and almost always there is a rally when these technical indicators are so deeply oversold.
The problem is that as the NASDAQ continues to have trouble, so will the rest of stocks. The NASDAQ led the recovery from the collapse of 2008 to 2009. That leadership role has fallen to the S&P 500 over the past several weeks and historically that happens only before the markets take a turn much further down.
The NASDAQ and 4000
The NASDAQ needs to recover the 4000 level quickly here or risk more selling and a move to first 3950 and then down to 3900. A move to 4000 is anotheer 2.5% lower for the NASDAQ. From its high of March 6 of 4371.71 a drop to 3900 would be a correction of 10.7%. Right now the chance of that happening is high. This would mark a strong correction for the NASDAQ. It would be rare for the NASDAQ to correct that deeply and not have the Dow and the S&P follow the NASDAQ that low.
Outlook Into The Afternoon
The market direction should drift sideways but the pressure will remain to the downside. The correction is well underway. My trades are now turned to the downside for stocks.
Internal Stock and Option Trades Links
Put Selling Strategies For Members
Covered Calls Strategies For Members
Profit And Income Strategies Index
Stock and Option Strategies For Members
Stock And Option Trades Explained For Members