Market Minute: Nasdaq Struggles to Regain Footing After Tuesday’s Rout

It’s been a rough shortened holiday week for the tech sector, with the Nasdaq-100 (NDX) seeing a -3.14% drop on Tuesday. This was, in part, due to a pronounced weakness in the semiconductor sector, with the VanEck Semiconductor ETF (SMH) dropping -7.5% and market juggernaut Nvidia (NVDA) plunging -9.5% on the same day. The decline seems to be continuing with the NDX finishing -0.19% lower yesterday; meanwhile, Nasdaq futures (/NQ) were down as low as about -0.6% in today’s premarket, suggesting the potential for the downside move to continue.

The trajectory for the NDX has been downward since Jul. 10, with the price action forming a trendline connecting the all-time highs to the subsequent lower highs in late August. Tuesday’s slide put price below several key moving averages, including the 21-day and 63-day Exponential Moving Averages, as well as the 50-day Simple Moving Average. This, coupled with the moving averages themselves starting to slope downward, represents a more bearish development. Furthermore, Tuesday’s drop took price below a small gap that formed between Aug. 14 and Aug. 15, so the gap area near 19,103 has been filled and price did not hold this potentially supportive area.

Momentum also is weakening for the tech-heavy index. Tuesday’s drop triggered a bearish crossover on the Moving Average Convergence Divergence (MACD) indicator, while the Relative Strength Index (RSI) also made a bearish crossover below its 50-midline. Both situations represent a shift from bullish momentum to bearish momentum. Additionally, the Average Directional Index (ADX), which measures the strength of the prevailing trend, is starting to rise from a trough. This could signify a strengthening downtrend as price continues to wane.

If the downside moves continues, look for potential support around 18,723. This is the low point after a small gap up that occurred between Aug. 12 and Aug. 13, so this could be a door to further downside if breached. Beyond that, the 252-day EMA comes in near 17,640. For the upside, the previously mentioned gap near 19,103 now becomes a resistance point to monitor, with the 21-day EMA and 63-day EMA close ahead. Overall, the downward-sloping trendline beginning at the all-time highs is the key measure to watch for further trend change, which would be breached at about 19,650 for today’s candle.