The Nasdaq’s Latest Movements And What’s Behind Them

The Nasdaq Composite recently slipped into negative territory for the year, largely due to China’s economic crisis. By the end of September, the Nasdaq stood at 4734.48, just about a point and a half below its 2014 close of 4736.05.

Along with China’s economic slowdown, investors have also been worried about the overall stock market slump and Volkswagen’s emissions scandal. As the charts show, the Nasdaq Composite has been at risk of falling back into correction territory.

Analysts remain pessimistic about any signs of a rebound, with stocks across the board trending downward. 🔗 More: » The Stock Market

Bearish market

Since the Nasdaq Composite is heavily weighted toward technology, Apple and Microsoft — its two largest components — have a major impact on its momentum. The Nasdaq’s recent moves have shown a clear bearish bias.

Slowing global PC shipments and another possible cutback in capital expenditure have made conditions difficult for the technology sector, even though it weathered the previous crisis relatively well.

Strong 3 weeks

Since September, the Nasdaq has been gaining and just closed its third consecutive week of gains—the first such streak since February. As data shifted expectations about the timing of rate hikes, investors have grown cautiously optimistic.

The Nasdaq closed up 16.59 points, or 0.34 percent, at 4,886.69. For the week, the index outperformed other major averages with a gain of 1.16 percent.

Katie Stockton, chief technical strategist at BTIG, said in a note, “We think short-term overbought conditions can be sustained for a few days, potentially allowing for a test of the 200-day moving average before a significant pullback unfolds.”

However, it’s not all positive. Stockton believes technical indicators on Friday suggested a downward bias, and gains may be temporary.

Long-term concerns

From a technical perspective, the Composite’s recent negative moves paint a bleak long-term outlook. If it begins to fall again—as is likely—it could be facing a prolonged downward reversal.

Regardless of the movements in the coming weeks, the Nasdaq faces a challenging road ahead. With China’s economy recording its weakest growth since 2009, the signs remain unfavorable. While the Nasdaq has risen over the last three weeks, it’s important to consider this within the broader context and trade accordingly.

Conclusion

The Nasdaq Composite’s recent movements are primarily driven by China’s economic situation. As China’s slowdown continues, the Nasdaq is likely to face further challenges despite showing growth in the past three weeks.

October, 19th 2015

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