The stock market selloff that followed the latest U.S. Federal Reserve policy meeting has left the Nasdaq Composite teetering on the brink of correction territory, and technical analysis indicates it is vulnerable to more losses.
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A 10% drop from a record peak on a closing basis is considered a correction on Wall Street, and the Nasdaq is essentially at that threshold. The recent selloff has left the index down 9.78% from its June 2 record closing high of 27,093.90. The Composite ended Wednesday at 24,442.94.
Adding to the unease, the index has taken out several closely watched support levels, which are areas that technical analysis would suggest buyers would become more active.
The Composite finished below its 100-day moving average, which ended Wednesday at 24,771.69, according to LSEG data. Moving averages smooth out price data to help analysts spot underlying trends, and are often watched as zones where buying or selling pressure can build.
The index has also closed below a widely watched Fibonacci retracement level. The 38.2% Fibonacci retracement of the March-to-June rally is at 24,707. Fibonacci retracements mark prices that markets often revisit after a big move, and traders use them to gauge potential support or resistance zones.
Given the support breaks, the Composite appears vulnerable to steeper losses with the 24,000 area, which includes the rising 200-day moving average and the 50% retracement, the next magnet to the downside.
However, the outlook for the index would improve if it reclaimed the 100-day moving average.
What the chart shows:
(Daily markets commentary from Reuters analysts on the signals financial charts are sending — and what they might mean.)
