The Nasdaq index has demonstrated a powerful surge from the June minimum, registered near the level at 11000. A total growth over the last two months has exceeded 24%, and a half of the decline from January highs has been won back. An ascending channel has formed, and the price has already tested its upper limit this week. The line hasn’t been crossed, though – the US stock market is reversing towards a decline.
Such a noticeable growth of the Nasdaq was mostly based on the expectations for the Fed to soften the monetary policy. The valuation of IT segment stocks heavily depends on the predicted levels of interest rates, and as soon as the expected level went down, the buyers became active. But there still are serious concerns that many market participants took wishful thinking, and the reality might turn out to be sour.
The minutes of the July Fed meeting were published yesterday, and they successfully diminished market optimism. The Fed representatives stated a clear insufficiency of current economic statistics to take the path of monetary policy softening. Even if the data of the following month (the next Fed meeting will be held on September 21) leads to raising of the interest rate by 0.5% instead of 0.75%, the expectations of many investors for the monetary policy to be softened by spring look unrealistic. The realization of this fact might result in a serious decline of the Nasdaq.
After such a strong growth wave, the following signals of upcoming correction might be observed:
*The price reached the upper limit of an ascending channel, after which the pullback began
*The Evening Doji Star reversal pattern
*The RSI indicator reached an overbought area (for the first time since the beginning of April), made a turn, and went into decline
It’s possible to pick up the level at 13000 as the first objective for correction. The minimums of February and March, the high of June, and the minimum of the last week are situated at this level. The lower limit of the ascending channel is also placed not far from it, where the bulls might go in counterattack.
The following trading strategy is possible:
Sell Nasdaq at the current price. Take profit – 13000. Stop loss – 13700.
It’s also allowable for traders to use Trailing stop instead of a fixed Stop loss, if it suits them.
This content is for informational purposes only and is not intended to be investing advice.
