Nasdaq 100 Cuts Through Important Support, Triggers H&S Pattern

Summary:
• At the time of writing, the Nasdaq 100 has added another 41-bps loss following yesterday’s decline of 165-bps (1.65%). Technical analysis suggets more pain.

At the time of writing, the Nasdaq 100 has added another 41-bps loss following yesterday’s decline of 165-bps (1.65%). The move lower has been triggered by sharp declines in European stock market indices such as the DAX index, and it was down by 72-bps at the time of writing and risk of trading lower according to technical analysis.

The move lower in the DAX is a reaction to the news that President Trump might be investigated, and also his comments about the US-China trade wars at yesterday’s UN speech.

As for the Nasdaq 100, the technical outlook is also bearish, but so is the macroeconomic outlook with leading economic indicators such as the US ISM, and European Markit Composite PMI all pointing towards a world economic slowdown.

Last week, China’s industrial production figures for August dropped to 4.4%, the smallest gain in the index since February 2002. However, stock market investors have been ignoring all the softening economic data, and instead, they were pinning their hopes that rate cuts by US and European Central Banks would prop up the world economy. However, the economic data suggests that it will take time, a view shared by ECB’s Mario Draghi in a speech last week.

Nasdaq 100 Outlook

Yesterday, I reported that the Nasdaq 100 was at risk of trading lower on a break to the September 15 low of 7771. The market managed to close below the support level, and this has opened up for further losses in the days ahead. I said the price could try to reach the September 2 low and that remains the next support level.

What is also interesting is that the Nasdaq 100 triggered a bearish Head and shoulders pattern. The pattern is constructed by using the September 6 and September 20 highs as the right and left shoulders, and the September high as the head. A neckline can be drawn via the September 10 and 23 lows. The difference between the September high and the neckline is subtracted from the breakpoint of the neckline, and it suggests that the Nasdaq 100 could decline to 7586. The bearish pattern will remain in play as long as the index trades below the September 24 high of 7873.