The Nasdaq looks primed for more heavy losses, following a major one-day bearish reversal in the leading US tech index on Wednesday amidst a fresh wave of risk-off trading sentiment towards US stocks.
Traders and investors started to book profits over fears that retail traders from various retail trading brokers and forums are teaming together to target Wall Street short sellers. Hedge funds are now exiting existing short positions, causing indices such as the Nasdaq to turn lower.
Huge amounts of trading volatility in GameStop, AMC, Kodak, and Nokia have also caused the Nasdaq CEO Adena Friedman to warn that the exchange is prepared to halt certain stocks if social media chatter provokes unusual market moves.
US earnings season is also upon us, which is also aiding market volatility and giving traders even more reason to be cautious. Many of the tech heavyweights inside the Nasdaq have noted caution about revenues for Q2 due to concerns over COVID-19.
Tesla and Facebook both disappointed with Q4 reports after the US closing bell, leaving plenty of scope for the Nasdaq to post further losses as the week progresses. Perhaps the biggest risk is whether the volatility continues with GameStop and other social media affected sites.
Should the volatility and risk-off sentiment continue then the downside risks for the Nasdaq are quite significant, given the strong run that the index has had so far this year. US data later today will also have a major impact on the Nasdaq, especially the release of US inflation and growth data later today.
According to the ActivTrader Market Sentiment tool traders still remain bullish towards the Nasdaq and are not concerned about yesterday’s strong pullback. At present, some 62 percent of traders are bullish towards the Nasdaq.
This is a potential red flag that the losses may continue, given that the herd continues to disbelieve that the index will suffer further downside. Going forward, the down move is likely to accelerate if trading sentiment increases, while price moves in the opposite direction.
Nasdaq Short-term Technical Analysis
The four-hour time frame shows that the short-term trend will turn bearish for the first-time since November last year if the price falls below the 12,870-support level.
According to the Parabolic SAR indicator the four-hour trend is bearish while the price trades below the 13,500 level. The indicator also shows that the 13,250 level offers the strongest form of resistance on any technical rebounds.
In terms of downside targets, the 12,500 and 12,200 levels are likely to come into focus if the 200-period moving average is broken, around the 12,870 level.
Source by ActivTrader.
Nasdaq Medium-term Technical Analysis
According to the daily time frame a substantial amount of bearish price divergence is present on the MACD indicator and extends down towards the 12,200 level. The RSI indicator is also extremely overbought on the mentioned time frame.
Source by ActivTrader.
The Parabolic SAR indicator shows that the trend on the daily time frame will turn bearish if the daily candle closes below the 12,900 level. A major long-term trendline will also come into focus around the 12,650 level if the daily trend turns bearish in-line with the Parabolic SAR indicator.