The NASDAQ corrected lower after the recent record high CPI report; however, all may not be as it seems as it could be the case that the US tech index is just performing a standard correction.
Technically, the set-up looks perfect. The NASDAQ recently broke out from a well-defined wedge pattern and surged towards the 12,200 level and has subsequently returned to the scene of the initial breakout.
Yesterday, the US CPI came in much stronger than expected with a 1.3 percent monthly rises. The Consumer Price Index in the United States also rose 9.1 percent from a year ago, a 40-year high that defied expectations of moderating price pressures.
Based on the market reaction, we could see a bottom forming in the NASDAQ, however, it is essential that the 11,700-support level holds over the coming days and weeks.
Traders sentiment towards the Nasdaq is still bullish. This is not very encouraging for the current recovery, as the retail crowd is typically on the wrong side of the trade when new trends emerge. However, the bias is not too wide.
I think we could see the Nasdaq bullish bias starting wane towards the leading US Tech index over the coming days and weeks.
The Nasdaq index on the four-hour time frame and looks like it is making a perfect technical test back towards a former breakout from a massive falling wedge pattern.
If the index manages to hold above the 11700 level, then technical analysis is highlighting that the index could see a major recovery towards the 12,000-resistance area.
The Nasdaq index is currently bearish in the medium-term despite the recent price correction. A move above the 14,100 level is needed to change the price trend.
The possibility for movement to the upside is however high probability. Bulls may need to break above 13,000 near-term resistance for any further gains to the upside.