Nasdaq 100 finds a floor at 7000, but for how long?

After falling nearly 30%, the Nasdaq 100 may have found a floor, at least for now. In May 2019 the great post-December 2018 surge turned around and fell back, but an 11% retracement found support around 7000.

Daily chart

Now, the price is holding that level once more. In addition, it has also moved above 7200, a similar development from earlier in March. Then it rapidly turned around and retested the 7000 zone, but if it can hold above 7200 then it will also have reclaimed the low from the beginning of August.

While this is beginning to provide a positive impression on the daily chart, the hourly chart still shows that the downtrend is intact.

Hourly chart

A bottom is a process, not a one-day event, and for the time being the index has yet to break the sequence of lower highs, even if it has managed to hold 7000 for now and thus avoid creating a lower low. The spike at the end of last week hit 8000 but was unable to hold on to its gains, so any sustainable rally needs to move above this to create a higher high, and then ideally drop back to form a higher low above 7000. This is all only conjecture at present, and for the time being the downtrend is still in place, meaning that ‘selling the rallies’ may still be the way to go.

NAAD chart

It is true that that price has shown some life, but the overall reading of advancing versus declining stocks on the Nasdaq, the index’s Advance-Decline line, is also still in a downtrend. It has yet to firmly bottom out, while its MACD indicator has yet to create a bullish crossover. Such a signal, along with a move back above the 13-day EMA, would perhaps indicate that a near-term low is in place.

NDX 200d chart

Looking at long-term breadth for the index, the percentage of stocks above their 200-day SMA has fallen to just 8.7%. This is as low as in late 2018, and lower than late 2015 and early 2016. Risk-reward at these points did tend to favour the longs, although a small sample set limits the utility of this view.

NDX 100d chart

Similarly, the percentage of index members at 100-day lows also hit 2018 highs, and firmly exceeded the levels of 2015 and 2016. With the market so overstretched to the downside, it is possible to see how a short-term rebound may gather pace, but as ever it is also important to note that the market is trading on headlines and may fall further in the near-term. Stop losses and good position sizing remains key, along with an ability to cut losing trades and add to winning ones.