The steep selloff in US stocks in the past two days is significantly raising the chance of near term reversal. NASDAQ closed down -107.42 pts or -1.39% over night to 7630.00. It’s down -3.82% from record intraday high as 7933.31. Bearish divergence condition in daily MACD shows notable loss in upside momentum. It’s now in a tentative support zone with 55 day EMA at 7623.45, and 38.2% retracement of 6926.97 to 7933.31 at 7548.88. While some support could be seen here, the strength of subsequent recovery will reveal whether the index is heading further down.
It’s a bit early to confirm. But we’d like to point out the bearish divergence condition in weekly MACD and RSI too. A firm break of the above mentioned 7548.88 fibonacci level will raise the chance of medium term correction. And fall from 7933.31 could extend to 38.2% retracement of 4209.76 to 7933.31 at 6510.91 before completion.
S&P 500 also closed down -16.22 pts or -0.58% to 2802.60 overnight. It’s starting to lose some upside momentum approaching 2827.87 resistance. We’d maintain the view that choppy rise from 2532.69 is a corrective move. And it’s likely the second leg of the medium term corrective pattern from 2872.87. Hence even in case of another rise, upside should be limited by 2827.87 to bring near term reversal. Break of 2795.14 support will be the first sign of such reversal . And firm break of channel support (now at 2751) should confirm.
Looking at the longer time frame, when the corrective pattern from 2872.87 extends, it should target 38.2% retracement of 1810.10 to 2872.87 at 2466.89 before completion.