The Nasdaq 100 index is the star of the year so far. It quickly reversed the coronavirus losses and turned bullish shortly after that. It made multiple all-time highs this year, and recently, it struggles. Maybe investors take profit ahead of the U.S. elections six weeks from now. Or the rally was too extended. But bulls are unlikely to give up here, despite bearish signs all over the place.
The index formed a head and shoulders pattern, and many traders were quick to point out this is bearish. However, the bullish characteristics of a rising trend remain in place, making it possible to trade the Nasdaq 100 index in both directions.
This week’s FOMC meeting was credited with the recent decline in the Nasdaq 100. After all, investors were taking profits ahead of the Fed’s message.
Many considered that the Fed would not ease at this point – and they were right. So, they booked the profits, and some may even go short at such high valuation levels. But the Fed did offer a strong forward guidance outlook – stronger than expected.
On top of that, the Fed was unlikely to do more this week as the U.S. elections near. Speaking of that, the Fed’s next meeting comes one day after the Election Day in November, making it just another element to add to volatility.
Therefore, the recent correction in the stock market may be just because of traders taking a conservative position.
The head and shoulders pattern mentioned earlier reflects the recent decline in the index’s price. It stalled at the neckline, and courageous bulls may want to try their hand on the long side. After all, this is dynamic support still. To do that, bulls need a stop at the 10,400 and a target of 11,600 or 11,800.
Bears, on the other hand, may sell at market (aggressive trading) or at the projected neckline (conservative trading). In both cases, the target should be 9,400 and the stop-loss 12,400.
