Nasdaq Composite Index: A Ray of HopeNasdaq Composite Index: A Ray of Hope
On July 31, we noted that the Nasdaq Composite Index (US Tech 100 mini on FXOpen) had reached significant support, highlighting trendline A and warning of potential volatility spikes due to fundamental news from the Federal Reserve and earnings season.
Since then, the price of the Nasdaq Composite Index (US Tech 100 mini on FXOpen):
→ Jumped to the 19540 level;
→ But encountered resistance there (indicated by an arrow), as this was previous support;
→ And returned to trendline A.
Thus, we have an argument that can be interpreted as the bulls' inability to resume the upward trend. The bears seized the opportunity to take control and break below trendline A on August 2.
Contributing factors included:
→ The decline in the Japanese stock market, which we wrote about yesterday. It is possible that the extremely strong sell-off of Japanese company shares affected sentiments in the US.
→ Increasing talks of a recession due to very weak US labour market data (published on Friday, which we also covered yesterday).
At the low point yesterday, the Nasdaq Composite Index (US Tech 100 mini on FXOpen) dropped by 7% from Friday's close. Of course, this isn't comparable to March 16, 2020, when the index fell by 12.32%, or October 19, 1987 (known as "Black Monday"), when it dropped by 11.35%. Nonetheless, the mood was grim – as CNBC reports, the stock market had its worst day in about two years. The RSI index fell to the oversold boundary.
But not all is bleak.
Technical analysis of the Nasdaq Composite Index (US Tech 100 mini on FXOpen) chart shows that:
→ The price is near line B, which is drawn parallel to line A at a distance equal to the height of the previous channel.
→ And this line B shows signs of support – by Monday's close, the bulls managed to reclaim almost all the progress made by the bears since the start of the session.
→ Yesterday's candlestick forms a "Hammer" pattern, which is a reversal pattern appearing after a decline and suggests seller capitulation and a potential upward reversal.
→ In the background is the important April low around the psychological level of 17k.
According to CandleScanner's research on the US stock market over 20 years, this pattern failed in about 21% of cases. Therefore, signs of weakening selling pressure will indicate that this time the pattern, appearing near line B, may be effective.
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