Nasdaq Correction: Here's How to Handle It

There is a saying in the stock markets: “Highs are a process, lows are an event”. And this fits with the trend that market tops can be a slow and tiring experience, while market bottoms can be quick. That's not always the case, but you seem to be seeing that in the US markets right now. Compare the March 2020 “V-bottom” low to the price action from the Nasdaq 100 all-time high and you'll see what we mean.

Price action has been mixed over the past few months, although bearish momentum is building as yields rise ahead of expected Fed rate hikes. Can prices accelerate down from here？ It's very possible. But markets rarely move in a straight line and are down. Deep markets/corrections are notorious for swinging against the trend.

With that in mind, the Nasdaq 100 is down more than 10% from its all-time high, confirming this as a correction versus a pullback. It's a well-publicized event judging by the headlines and that alone puts the index at risk of a corrective bounce. We also have the 200-day EMA and the 15,000 level just below yesterday's close, increasing the likelihood that it will not turn down immediately, coupled with the fact that US yields on the VIX (NDX) ticked lower yesterday. Despite the lower index.

Viewing the daily chart, the bearish momentum on the Nasdaq 100 is now accelerating down. However, three clear areas of support stand out.

15,000 as it is a round number and right near the 200-day EMA

14,800 – 14,900: gap not closed, 138.2% Fibonacci projection

14,834 – 14,566: October low, 100 / 161, 8% Fibonacci projection, long-term 23.8% Fibonacci Ratio

Therefore the suspect moves lower could be capped at the short-term and prices could rally to 14,900 from the 14,800 support zone if prices break above 15,000 October lows. However, a direct move back above 15,500 will invalidate our bearish bias.