This article is written exclusively for Investing.com
They say that the response to news is always more important than the news itself. So while Thursday's earnings results of some of the tech giants seemed reasonable, the fact that their stock prices have fallen is what makes me wonder if we'll see a bigger correction in the sector now, and in turn the.
futures fell first on Friday after quarterly figures from technology heavyweights Apple (NASDAQ 🙂 and Amazon (NASDAQ :), as well as social media stalwarts Facebook (NASDAQ 🙂 and Twitter (NYSE :), failed to secure the mood.
Investor sentiment has already been hurt by the resurgence of the coronavirus and new lockdowns across Europe. Uncertainty surrounding the Nov. 3 US presidential election and the sale of the momentum also added pressure. However, at the time of writing, European indices and US futures were at their worst
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It remains to be seen if the recovery will continue as it is possible that more lockdown measures could be announced over the weekend, and this could potentially lead to a lower gap in the future at the Asian opening next week .
The fact that some technology leaders expressed concerns about the industry's outlook will not go unnoticed by forward-looking financial markets. Investors have so far plunged into growth stocks, but now some will no doubt think twice about investing in these markets until there is a significant correction. So there's a possibility that the mighty NASDAQ will expand its correction further, as scum will be removed from some technology names that have risen disproportionately higher since its March shutdown.
So far, the NASDAQ has not formed a lower low to tell us objectively that the trend has turned bearish. So we must remain open-minded and objective. BUT, the fact that the index did not hold up above the earlier breakout area, supporting around 11,600 – not to mention the bullish trendline breakdown – means that the bulls nonetheless appear to be the trapped group of market participants.
If this is indeed the case, then the market should logically "fall" to a level where the bulls' stop-loss orders will rest. One of those areas was under the old support at around 11,200, which has already been taken. The next big liquidity pool – and thus a major bearish target – is said to be below the September low of 10,656 isch. To increase the likelihood of the index dropping to this level, we now need to see acceptance below that 11,200 level.
However, if there is no acceptance below the 11,200 level, consider a possible short-coverage recovery. Still, the bearish bias wouldn't end completely until and unless we move back above the broken bullish trendline and the previous key support and resistance level of 11,600.
So those are the two main short-term scenarios we should look forward to in the coming days as we get closer to the election. Overall, however, investor sentiment remains cautious and the trend is bearish for the major indices. Against this background, I would lean more towards looking for bearish than bullish trading setups until the charts tell us otherwise.
