NASDAQ Index Leads Downward

The NASDAQ index is trading at a new session low and its lowest level since August 12. The downtrend is driven by a mixed/weak U.S. employment report. Nonfarm payrolls rose less than expected (142,000 vs. 160,000 estimates), with previous months’ figures also revised down by 86,000. The unemployment rate fell to 4.2% from 4.3%, giving the numbers a bit of a mix.

Fed Chairman William Williams spoke shortly after the report was released. He initially stopped short of proposing a 50 basis point cut at the Fed’s September 18 meeting, disappointing the market. He now says he’s not sure whether he’ll cut 50 or 25 basis points.

There is a 63% chance of a 50 basis point cut on September 25 and a 94% chance of a 50 basis point cut in November.

The NASDAQ index is now down -332 points, or -1.96%, at 16,788.

Technically, looking at the hourly chart, recall that yesterday, the corrective move higher stalled against its 200-hour moving average currently at 17,272.22. This gave sellers the advantage ahead of the jobs report. Today’s high could only reach 17,166.54, comfortably below that 200-hour moving average level. Sellers are entering the market and have since pushed price below a swing target area between 16,984 and 17,034.

More recently, the 50% midpoint of the upward move from the August low to high was breached at 16,861.39. Reaching and holding below this level would be increasingly bearish and would prompt traders to look towards the 61.8% retracement at 16,589.32.

Recall that on August 5, the lowest price reached 15,708.54. This is the day when the Japanese Nikkei 225 fell by -12.4% in a single day.

So there is some room between the year low and the current price. The question is, was that early August drop an overreaction to that carry trade sell-off?

Note that the day before the August 5th plunge, the bottom was near the 61.8% retracement level described above at 16,589.32. This increases the importance of the levels going forward. If the carry trade selloff WAS an overreaction, this may be a good target to aim for, but also a level where buyers can dip their toe in the water.