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Nasdaq 100 has finally bowed to the extreme overbought conditions. Despite the sell-off on Thursday, key support at 11630/530 remains intact. Only a break below here would be seen confirming a corrective phase lower is finally underway, which would be further reinforced if a close below 11530 is seen today as this would also mark a bearish “reversal week”, analysts at Credit Suisse brief.

Key quotes

“Nasdaq has finally bowed to the extreme overbought conditions we have been flagging with the market gapping lower on high volume for an aggressive fall of over 5% in one session. The key question now is whether this is just a short sharp shock to unwind the overbought condition or whether this is finally the beginning of a more significant corrective phase, which remains a real risk given the Inflation Breakeven setup and with the S&P 500 having been to the upper end of its ‘typical’ extreme.”

“Key support remains seen at the 21-day exponential average, which has contained every setback from late April and again contained the index yesterday. This is currently placed at 11630, just above the lower end of the uptrend channel from June and last week’s low at 11530. This 11630/530 zone is thus seen as pivotal going forward. Only a close today below 11530 would see key supports break and a bearish ‘reversal week’ established, clearing the way for further weakness with support seen next at 11125/00 – the 23.6% retracement of the entire rally from March.”

“Whilst 11630/530 holds the accelerated uptrend will remain intact, despite yesterday’s sell-off with resistance seen at 11855 initially, above which can see a move back to 12235 and then a retest of 12420/60.”

 

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