Nasdaq 100 and S&P 500 are on the verge of a deeper correction

The US stock market is attempting to bounce back on Friday after the heavy sell-off on Wednesday and Thursday. The Nasdaq-100 index was close to key levels where it reversed gains made in June and August. The S&P 500 has fallen below similar support, which is worrying.

Nasdaq-100 futures fell below 14700 on Friday morning. Previously, on 26 June and 18 August, this area supported a reversal to the upside. But in that time, the situation has deteriorated. In June, there was a brief pause on the way up. It was a desperate attempt in August to hold onto the uptrend, followed by a long battle for the 50-day moving average.

The bearish team showed its strength in the second half of September when it first pushed the index below this medium-term trend indicator in a strong move and then pushed the Nasdaq-100 4% away from this line after the Fed meeting. In addition, the 50-day moving average reversed to the downside for the first time since early January.

As is often the case on Friday, we will see some short-term profit-taking that may raise false hopes. A consolidation below 14700 early next week will set the stage for a deeper correction. Potential targets are 13930, where 61.8% of the rally since the beginning of the year has taken place. Or the 200-day average, now near 13600 but pointing higher, will reach 13900 around mid-October.

The alternative scenario suggests that stocks will continue to find support not only on Friday but into the new week, forming a triple bottom and potentially completing a corrective pullback to 76.4% of the year-to-date rally.

The S&P 500 is in a more difficult position, as Thursday’s trading saw the index close below the pivot points from August and the second half of June and below the 76.4% line of all gains since last October. A classic 61.8% Fibonacci retracement of the previous 12 months’ rally would suggest a decline to the 4200 area, the 200-day moving average and a former major resistance area from May 2022 to June 2023.

Even if these correction targets for the Nasdaq-100 and S&P 500 are fully met, we will still be in a bull market. At the same time, there is a chance that the monetary authorities will be more cautious in their comments on the economy’s strength, as they often judge it by the volatility of the markets.