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

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

In addition to China’s economic slowdown, investors have been concerned about the slump of the stock market and Volkswagen’s energy emissions crisis. As the charts indicate, the Nasdaq Composite has been in danger of falling back into corrections mode.

Analysts have been pessimistic about any signs of an upturn, with stocks across the board on a negative trend.

Bearish market

Since the Nasdaq Composite is a technology-weighted market, Apple and Microsoft - its 2 biggest constituents - play a major role in its momentum. The Nasdaq, with the current movements, has been showing a bearish bias.

Slow global PC shipments and another possible retrenchment in capital expenditure spendings have made it difficult for the technology market, despite it having weathered the previous crisis relatively easily.

Strong 3 weeks

But since September, the Nasdaq has been seeing gains and has just closed its 3rd consecutive week of gains (the first since February). Since data has pushed out expectations for the timing of rates hikes, investors have been cautiously optimistic.

The Nasdaq closed up 16.59 points, or 0.34 percent, at 4,886.69. For the week, the index outperformed the 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 good, as Stockton believes technical indicators on Friday suggested a lower bias, and gains may be temporary.

Long-term concerns

In the long term, the Composite’s recent negative movements present a bleak outlook from a technical perspective. Should it begin and continue to fall again, as is likely, it could be facing a long reversal downwards.

No matter the movements of the next few weeks, the Nasdaq faces a difficult road ahead. With China’s economy logging its weakest growth since 2009, the signs are not looking positive. While the Nasdaq has been on the up for the last three weeks, it is necessary to view it in the broader context, and trade accordingly.

Conclusion

The Nasdaq Composite’s recent movements are mainly due to the economic situation in China. With China’s economic slowdown on track to continue, the Nasdaq is likely to face further difficult times, despite displaying growth in the past three weeks.

October, 19th 2015

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