Lower High Lower Low – Downtrend Begins

• Nasdaq, after enjoying a super rally since covid recovery, has recently been hit by various factors. We had long held the view that market rally is due much to quantitative easing and inflation is bound to come. Tech sector has also been the go to market for growth, but market had appreciated too much and was due for correction.


• As market reached a peak, investors started rationalising their positions. Netflix revenue was uninspiring as many users were sharing accounts. China tech was clamped down by government and saw BABA and Pinduoduo dumping amongst others. To add oil to fire, the recent issues with crypto seems to have added to the bearish mood.


• All this fake demand due to US printing money started to take a toll on the economy with inflation rising. Most recently the Fed raised bank rates in an effort to curb inflation. But with economy fundamentally not performing, markets turned bearish with many callings for recession to come.


• This was reflected in the chart by the head and shoulders pattern. When the right shoulder formed, aggressive bears sold the break of the neckline. Market however bounced back given uncertainty at that time of a bear market but could not make a higher high and following which it tumbled back down.


• Recently market broke the lows again forming a lower low and a lower high after breaking through multiple support levels. A downtrend was formed. Coupled with market sentiment and fundamentals, it seems market is poised to continue its fall.


• Next support zone is key. If price can break through this key support zone, market can continue to fall to the next support area which was the high right before covid started, essentially erasing all the “fake gains” since covid.


• So at this point it is prudent to take a with trend trade on the longer horizon i.e. take a short side trade after rejection from short term resistance levels (e.g. rejection from 20EMA). Fortunately this is simple to do with CFDs.