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Chart Of The Day: NASDAQ Set For Bigger Correction? 

By Fawad RazaqzadaStock MarketsOct 30, 2020 09:03AM ET
www.investing.com/analysis/chart-of-the-day-nasdaq-set-for-bigger-correction-200542953
Chart Of The Day: NASDAQ Set For Bigger Correction? 
By Fawad Razaqzada   |  Oct 30, 2020 09:03AM ET
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This article was written exclusively for Investing.com

They say it is the reaction to news that is always more important than the news itself. So, while Thursday’s earnings results from some of the technology giants seemed decent, the fact that their share prices fell is what makes me wonder whether we will now see a bigger correction in the sector, and, in turn, the NASDAQ 100.

NASDAQ futures fell first thing on Friday after quarterly earnings results from technology heavyweights Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), as well as social media stalwarts Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR), failed to lift the mood.

NASDAQ Futures Daily
NASDAQ Futures Daily

Investor sentiment was already hurt by the resurgence of coronavirus and new lockdowns across Europe. Uncertainty related to the Nov. 3 US presidential election, as well as momentum selling also added to the pressure. However, at the time of writing, European indices and US futures were coming off their worst levels.

It remains to be seen whether the recovery will hold given that it is possible more lockdown measures could be announced over the weekend, and this could potentially cause futures to gap lower at the Asian open next week.

The fact that some tech leaders raised concern about the outlook for the sector will not go unnoticed by forward-looking financial markets. Investors have until now been piling into growth stocks, but now some will undoubtedly think twice about investing in these markets until there is a sizeable correction. So, there is a possibility that the mighty NASDAQ may extend its correction further, as froth is removed from some of the technology names which have disproportionately surged higher since lockdown in March.

Thus far, the NASDAQ has not formed a lower low to objectively tell us that the trend has turned bearish. So, we need to remain open minded and objective. BUT the fact that the index failed to hold its own above the prior breakout area and support around 11,600—not to mention the breakdown of the rising trend line—means the bulls appear to be the trapped group of market participants, nonetheless.

If this is indeed the case, then logically the market ‘should’ drop to levels where the bulls’ stop loss orders will be resting. One of those areas was below old support around 11,200, which has already been taken. The next big pool of liquidity—and thus a key bearish objective—would be beneath the September low at 10,656ish. To enhance the probability of the index dropping to this level, we now need to see acceptance below that 11,200 level.

However, if there is no acceptance below the 11,200 level, then be mindful of a possible short covering rebound. Even so, the bearish bias would not completely end until and unless we go back above the broken bullish trend line and the prior key support and resistance level of 11,600.

So, those are the two key short-term scenarios to watch for in the coming days as we get closer to the election. Overall, though, investor sentiment remains cagey and the trend bearish for the major indices. Against this backdrop, I would lean more towards looking for bearish than bullish trade setups, until the charts tell us otherwise.

Chart Of The Day: NASDAQ Set For Bigger Correction? 
 

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Chart Of The Day: NASDAQ Set For Bigger Correction? 

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Comments (17)
Amit Kumar
Amit Kumar Nov 02, 2020 6:07AM ET
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Terrible article. Do you read how market did in 2016 election. This fall is election shivers. We are up big time today. Sorry I spent time glacing the content
Vik Knowledge
Vik Knowledge Nov 02, 2020 12:53AM ET
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vacuous article
Phil Kimmel
Phil Kimmel Nov 01, 2020 12:12PM ET
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Terrible article showing no commitment in either direction. Professional waffling is unnecessary.
Michael Johnston
Michael Johnston Nov 01, 2020 12:12PM ET
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agree completely
Michael Johnston
Michael Johnston Nov 01, 2020 12:12PM ET
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its like saying, i might ***tomorrow but then again i may not
Solomon Lalani
Solomon Nov 01, 2020 1:16AM ET
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Just like Gold was all ready for a breakout at 1900, from 18 Oct article? Neither that happened nor this will happen. Buy thr dip on Monday and Election day for 12k+ before any correction!
George Pichurov
George Pichurov Nov 01, 2020 1:13AM ET
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there was strong buy at EOD, both SP and Nasdaq. Short term correction likely. Long term bearish, of course. Prices catch up with earnings, ultimately.
Marathon Man
Marathon Man Nov 01, 2020 1:13AM ET
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Ladt 9 minutes of trading those were not long purchases, no new buyers and no new money, these were people closing their short positions, as they did not want to be short over the weekend.
Tony Roberts
Tony Roberts Oct 31, 2020 7:43PM ET
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MSFT at $200...mortgage your home, sell your wife, beg, borrow or steal to get in at this level..it’s going nowhere but up from here and will hit $240-250 by year end regardless of who wins the Presidency.Buy, buy, and buy more.
Lake Lot
Lake Lot Oct 31, 2020 7:43PM ET
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Yep
George Pichurov
George Pichurov Oct 31, 2020 7:43PM ET
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you bring me back to 99 with your dreams. Disco music was so much better back then...
Leon Kelly
Leon Kelly Oct 31, 2020 1:22PM ET
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I think whatever the reaction to who wins the election will decide the direction for QQQ and Spy. Investors will be $crewed if it completes double top but option players can make money either way
Sushil Jain
Sushil Jain Oct 31, 2020 1:10AM ET
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Ti is to : &amp ignore
Sushil Jain
Sushil Jain Oct 31, 2020 1:08AM ET
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Huge liquidity sitting on sidelines was waiting for these levels ti get in & tech is wrong ti be hammered as demand for amazon netflix facebooks and apple will peak for at keast 1-2 years more till normalcy returns. Techs r not airlines
Won Hong
Won Hong Oct 30, 2020 4:29PM ET
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Invest for 10years plus and you dont have to worry about small dips lol
Fabio falec
falec Oct 30, 2020 4:29PM ET
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Look how long did it take to recover from the small dip in 2000.
Irvin Mermelstein
Irvin Mermelstein Oct 30, 2020 1:47PM ET
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The worst is yet to come. RH investors have one creed: buy the dip. Unfortunately, that strategy defies the old wisdom not to try to catch a falling knife. It's great for short sellers, though. Last March, things were infinitely better than today and the NASDAQ was at 6500.
Sasanka Valluri
Sasanka Valluri Oct 30, 2020 1:47PM ET
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No. we are closer to a vaccine than in march when we had no idea what the heck was going on. Digital trends are here to stay. So, we are much better off than in march
George Pichurov
George Pichurov Oct 30, 2020 1:47PM ET
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Sasanka Valluri  you have no idea of vaccine stuff for a mutating virus. Even media abandoned this meme, whose purpose was pushing the market on hopes. Most likely virus will vanish before widely adopted vaccine.
Attila Bakk
Attila Bakk Oct 30, 2020 1:13PM ET
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Wallstreet got tipped off of second lockdown
Tim Katsapas
Tim Katsapas Oct 30, 2020 12:44PM ET
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I tend to agree. however I also see the possibility that 3000 could be a strong area of support on the ES. next support is 2750 however if stimulus comes out then should see a recovery.
taylor jason
taylor jason Oct 30, 2020 10:55AM ET
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lol literally been on a two month down trend and this guy says more selling. everything im looking is showing we are oversold and a bottoming formation is beginning. plus let's look at the facts, rates are zero, inflation is low, ted spread/other credit spreads are narrowing, and more fiscal stimulus inbound.
Plopseven Schwartz
Plopseven Schwartz Oct 30, 2020 10:55AM ET
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If you care about p/e ratios (which apprently very few do) we are still far away from oversold.
George Pichurov
George Pichurov Oct 30, 2020 10:55AM ET
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Plopseven Schwartz  talking PE we are so much overbought. But federal drugs keep the shet in place for now. I view a 50% Fib re-bounce likely (up to 3384, which also closes the bearish gap), and maybe further to a futures gap at 3440. Then comes the 12y bullish upper channel line, which was hit September, and we all saw what followed.
vipul makani
vipul makani Oct 30, 2020 9:53AM ET
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Dude buy the dip , Fed is buying all the qqqq
Keith Moore
Keith Moore Oct 30, 2020 9:42AM ET
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Its not
Jerry Gregor
Jerry Gregor Oct 30, 2020 9:28AM ET
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Thanks for your write-up. Tend to agree. What could a contested election do to markets? You know trump will contest any result that doesn't declare him the winner.
Paul Sutton
paulsmith007 Oct 30, 2020 9:28AM ET
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Exactly. If you're a regular investor, do not try to be a hero here. As Jerry said, whatever happens unless the human cancer has an outright win, he will contest and contest unless he winst. Market will be rough - probably another 3-5% pullback.
 
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