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Chart Of The Day: NASDAQ 100 Selloff May Just Be Getting Started

By Investing.com (Pinchas Cohen/Investing.com)Stock MarketsMar 08, 2021 09:40AM ET
www.investing.com/analysis/chart-of-the-day-nasdaq-100-selloff-may-just-be-getting-started-200565705
Chart Of The Day: NASDAQ 100 Selloff May Just Be Getting Started
By Investing.com (Pinchas Cohen/Investing.com)   |  Mar 08, 2021 09:40AM ET
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Yields continue to dominate the market discourse. A Treasury selloff increases the difference between their falling prices and their fixed yield, causing the rate to rise. Investors sell Treasuries when they expect the prices for goods and services to go up, a phenomenon known as “inflation” in professional lingo.

The current market narrative says “helicopter money,” when central banks and regulators hand over cash directly to citizens—recently, fiscal aid for pandemic-hit citizens in the form of Trump administration stimulus,which will now be followed by an additional $1.9 trillion from the Biden administration—will cause inflation to rise. 

And judging by current moves on futures for the NASDAQ, the underlying index could become inflation's first serious target. 

Given that big tech companies, most aptly represented by those listed on the NASDAQ 100, saw massive inflation in value during social restrictions caused by the COVID-19 pandemic, they are now the first to be pressured as equities sell off. Big tech shares have been condemned for being overvalued for a while, so this new, broader risk provides investors the opportunity to quickly take profits, while they consider other areas of the market, which provide more value. That includes beaten down sectors such as energy, tourism and leisure and banks.

Technicals are signaling the tech selloff may have only just gotten started.

NDX Daily
NDX Daily

While NASDAQ futures suggested an extended selloff for the underlying gauge, note that Friday’s trading produced a hammer, whose bullishness is confirmed with a close above the 100 DMA. While that shows there's still bullish energy, along with a potential rebound in the MAD and RSI, dip buyers should recognize that the price just completed a small H&S top, whose neckline is just above Friday’s close.

The reversal pattern pushed the price below the uptrend line since the March bottom for the first time, suggesting it could garner more attention than that of the S&P 500, for example, which has had numerous readjustments.

While we may witness a rebound, we expect the tech-heavy index to repeat its move lower between the 50 and 100 DMAs toward the 200 DMA.

Trading Strategies

Conservative traders should wait for the price to close below the hammer low, then for a corrective rally, allowing the MACD and RSI to rise. Ideally, they’d wait for the indicators to be overbought, but with the price’s proximity to the reversal pattern and the dotted downtrend line we don’t expect there will be a chance for that, if we’re right and the index will, in fact, extend the selloff.

Moderate traders would wait either for a return to the dotted line, with evidence of resistance, or for a break of the hammer, then wait for a return-move for a better entry, if not for added confirmation on the reversal.

Aggressive traders could short at will, provided they read this post in its entirety, understand and accept the elevated risks of a potential premature short before reinforced confirmation. Money management is crucial.

Here’s an example:

Trade Sample

  • Entry: 12,700
  • Stop-Loss: 13,000
  • Risk: 300 points
  • Target: 11,800
  • Reward: 900 points
  • Risk:Reward Ratio: 1:3
Chart Of The Day: NASDAQ 100 Selloff May Just Be Getting Started
 

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Chart Of The Day: NASDAQ 100 Selloff May Just Be Getting Started

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Comments (8)
An Bitar
An Bitar Mar 09, 2021 7:01PM ET
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Interesting Article ! NASDAQ does the opposite the very next day
Fat Gorilla
FatGorilla Mar 09, 2021 1:12AM ET
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Every time there is an article with this much blatant fear promotions it is on the verge of going the other way.
Pinchas Cohen
Pinchas Cohen Mar 09, 2021 1:12AM ET
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There you have it. I'm a reliable divergent indicator. You're welcome.
Vital Martin
Vital Martin Mar 08, 2021 9:20PM ET
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you are in now
Glenn Moss
Glenn Moss Mar 08, 2021 8:55PM ET
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AAPL has a monster sized pre-split gap around 96. Til it fills thats all you need to know.
Fat Gorilla
FatGorilla Mar 08, 2021 8:55PM ET
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That gap was more than filled by 50b in share buybacks
Joe Messeri
Joe Messeri Mar 08, 2021 2:25PM ET
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This is going to be wonderful I liquidated in January and have plenty of powder to deploy when rhe time is ripe and right
Leon Kelly
Leon Kelly Mar 08, 2021 1:39PM ET
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I agree .Poor Kathie and her ARK. Stop buying the dip Kathie
KN TR
KNTR Mar 08, 2021 10:21AM ET
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Nasdaq on the way to new ATH too, but the neck line is the key !
Sevantilal Patel
Sevantilal Patel Mar 08, 2021 10:03AM ET
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First the yield than tech that hospitality than airlines than cosumpion than. than than
 
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