Nasdaq Index Retreats More than Other U.S. Indices as Tech Shares Plunge

The Nasdaq Composite Index closed at 5,251.11, down -72.57 (-1.36%) lower from its previous close of 5,323.68. Today, the index traded between 5,238.21 and 5,326.34 before settling. The 52-week range presently sits at 4,209.76 and 5,403.86.

The Nasdaq’s volume of 526 million shares trading hands today was lower than Wednesday’s 581 million. There were 1,076 (37%) issues that advanced while 1,701 (59%) declined (119 unchanged). Of those, 321 companies recorded record new highs while 125 made new lows.

Today, the Nasdaq opened +0.20 (+0.00%) higher at 5,323.88 but almost immediately fell into negative territory where it remained for the rest of the day.

The index fluctuated near the previous close for the opening 30 minutes but it saw a sharp sell-off during the following hour. From there, it made a consistent move slightly lower for the remaining 5 hours:

NASDAQ - Recap and Outlook for Dec 1 2016 - ONE

The intra-day chart (above) shows that the bears dominated the Nasdaq Composite Index today.

You will notice that the bulk of the declines occurred between the dotted (red) trendline (near today’s open) and the thick, red (horizontal) line which is the upper resistance of a sideways trend channel.

Note that the horizontal (yellow) line is the midway point of the sideways trend channel that we have now re-entered. At the end of today’s session, the Nasdaq was right at the thin, red line which is the half way point between the yellow line and the ultimate resistance of the channel.

While some may see all of the lower indicators as being bullish with their upward trajectories and high levels, I actually see the opposite. Because the RSI and Stochastics have reached over-bought levels, that leaves them much more room to the downside than any upward area to claim (especially the latter).

As you can see by my red arrows, I expect these to fall and ultimately reverse the MACD trajectory also as a result. The blue trendlines, based upon the MACD troughs suggests that today’s fall in the Nasdaq might have been exaggerated by roughly 30 points.

NASDAQ - Recap and Outlook for Dec 1 2016 - TWO

On today’s 1-month (30-minute candle) chart which is shown above, we can see that the Nasdaq Composite Index hasn’t traded within the sideways channel since mid-November.

We can also see several conflicting messages. Firstly, should the index rally tomorrow, I would expect it to pause near the thick (horizontal) red line and reverse back down.

That is the path of least resistance but that doesn’t mean that it is impossible to break back above this line. If it does, then the move higher could be very strong as there is no resistance in the area just above.

Note also that we are in the lower portion between the Bollinger Bands. While both the upper and lower bands are currently declining, there exists a very strong upward bias even if we are to move only back to the midway point between these lines.

Staying on the bullish case, the lower indicators are all over-sold and seem to be trickling higher. This suggests that they may have been mobilizing to start a protracted move higher effective immediately.

The MACD could be about to form a fresh-cross to the upside. If it does so, traders will want to watch how steep this line will be in order to gauge how powerful the incline will be and how long it might last.

The blue trendlines, based upon the MACD troughs, suggest that the bigger picture for the Nasdaq is still a bearish one. This is where one of the contradictions to the other indicators comes in. The line suggests that the index should already be trading at 5,000 (a decline of more than 250 points from the current level or a loss of just under 5%).

NASDAQ - Recap and Outlook for Dec 1 2016 - THREE

The chart (above) is the same 1-month (30-min. candle) chart as I had shown in my previous report for the Nasdaq Composite Index.

You can see that despite some bullish indicators, I still drew some red arrows at the time which identified key levels of support as I was expecting the index to decline.

In fact, in that report, I mentioned: “I am confident that the index could soon find itself somewhere within the 5,000 to 5,200 range in the near future despite this being a seasonally strong time of year.”

I also had mentioned the following comment: “Despite the Stochastics and RSI indicators both trading at over-sold levels, meaning that they are due for a rally next, I would be so bold as to predict that I would be very surprised if we do not touch the upper red line of resistance of the sideways channel.

You can compare the previous two charts to see why my prediction was made and how it turned out. Many of its forces are still intact and provides a powerful insight into where the index could be headed next.

For the trailing 1-month period, the Nasdaq Composite Index has made a +1.89% return. Going back a year, it has yielded +1.84%. There is a very big divergence between the tech-heavy Nasdaq and the Dow Jones Industrial Average (DJIA).

The DJIA made another record closing high today when it rose +68.35 (+0.36%) higher to 19,191.93. Markets seem to believe that U.S. President-elect Donald Trump is good for big-cap, industrial equities.

Meanwhile, the S&P 500 lost -7.73 (-0.35%) lower to 2,191.08 today (much less than the Nasdaq which saw its worst 2-day performance since September 9th).

Donald Trump visited Indiana to celebrate a deal with Carrier around 1,100 jobs in the state rather than moving to Mexico. The state agreed to give the firm $7 million in tax incentives (over 10 years) while the company will invest at least $16 million in upgrades to its plants. Carrier is a unit of United Technologies Corp. (NYSE: UTX)

U.S congress passed an extension of the Iran Sanctions Act today. That contributed to the U.S. dollar remaining near a decade high.

The strength in the greenback resulted in gold remaining below the 1,200 level but it was not enough to halt WTI crude oil’s advance.

Oil prices have seen their best 2-day increase since the end of January. This is because of yesterday’s agreement to curb oil production. It should be noted that OPEC doesn’t have a solid track record of abiding by its own quotas. While Russia has joined OPEC in promising a cutback of 300,000 barrels, there could be excuses for failing to meet targets such as “technical issues.”

In the United States, treasuries extended their declines as the 10-year yield, sitting at 2.44 (up 0.06%), hit its 2016 high. At one point today it was +0.10% higher after making its biggest monthly jump (in November) since 2009. The 2-year yield saw a gain of +0.03% to 1.15 percent.

But the spike in the 10-year yield could be nearing an end as the RSI is close to 60. This suggests that a lot of range consolidation is possible and even likely. For now, banks are loving the higher yields and financial stocks are seeing money flow into them. This comes to the detriment of technology shares and explains today’s divergence between the Nasdaq and Down Jones Industrial Average.

In the week of Nov. 24th to Nov. 30th, the Federal Reserve (Fed) bought $8.034 billion of agency mortgage-backed securities (compared to the $7.529 billion in the week before).

Looking ahead, trades will be watching the U.S. jobs numbers which will be coming out at 8:30 a.m. EST. 180,000 is the forecasted figure while some whisper numbers suggest a jump of 189,000 jobs. The actual figure will need to be really shocking in order to be relevant because most market participants are expecting a rate hike this month by the Federal Reserve regardless of the number.

In Europe, Francois Hollande dropped out of the French presidential race. Markets could also be thrown off track by a far-right candidate winning the Austrian election this weekend.

This could shake markets just as much, if not more, than the Italian referendum next week (where people expect a “No” vote). Italian markets have done well lately and Italian bonds have bounced back (in relation to Germany).

The European Central Bank could announce an extension of quantitative easing also next week.

NASDAQ - Recap and Outlook for Dec 1 2016 - FOUR

The three biggest gainers on the Nasdaq today were: Venaxis Inc. (APPY) up +$1.350 (+44.26%) higher to $4.400, Biostage Inc. (BSTG) up +$0.280 (+35.00%) higher to $1.080, and Memorial Production Partners LP (MEMP) up +$0.180 (+34.67%) higher to $0.700 after already rising +65.02% higher in the previous session.

The three biggest decliners today were: Heat Biologics Inc. (HTBX) down -$1.840 (-64.11%) lower to $1.030, Aradigm Corporation (ARDM) down -$2.950 (-56.30%) lower to $2.290, and Genetic Technologies Ltd. (GENE) down -$0.790 (-36.07%) lower to $1.400

Apple Inc. (AAPL) has apparently been reducing orders from iPhone 7 suppliers. The stock declined -$1.030 (-0.93%) lower to $109.49 today. The stocks chart is shown above.

Other tech. giants fell for their second day in a row, including Microsoft Corporation, which lost -$1.060 (-1.76%) lower to $59.200 and Facebook Inc. (FB), which retreated -$3.320 (-2.80%) lower to $115.100 today.

Robert Patyk has 15 years’ experience trading stocks, options, commodities, futures options, & currencies. At age 17 he won first place in an international stock trading competition. Robert predicted the market crash of 2008 two years early. He is a contrarian, top-down macro trader achieving high returns by studying geo-politics, fundamentals, and technical indicators.