As the tech-heavy benchmark index, the Nasdaq 100, entered the correction zone on Thursday after falling nearly 10% from its previous high, this analyst has warned that another 3.5% drawdown over the next two weeks will lead the index into the bear market territory.
What Happened: Nasdaq 100, slipped 9.76% from its previous record high of 22,222.61 points to 20,052.64 on Thursday. While a 10% fall from a recent high is considered a market correction, a 20% or greater decline from a recent high is considered a bear market.
Additionally, the index fell below its 200-day simple moving average for the first time in nearly two years or 497 trading sessions.
Despite being another 10% away from the bear market zone, Jason Goepfert, a consultant at White Oak Consultancy LLC, has highlighted a trend explaining that the next two weeks would be crucial for the index.
“Every time it lost its 200-day after an extended run and suffered at least a -3.5% drawdown within the next 2 weeks, it led to a bear market.” However, if the Nasdaq 100’s two-week drawdown was less than 3.5%, its one-year returns were positive every time.
Why It Matters: According to Benzinga Pro data, the exchange-traded fund tracking the Nasdaq 100 index, Invesco QQQ Trust, Series 1 QQQ slipped below its 200-day moving average of $492.65.
Other technical indicators painted a bleak picture for QQQ as well. It was below its short and medium term averages and its momentum indicator MACD was negative 7.5, implying a short term correction. The relative strength index at 32.68, even though neutral, was nearing an oversold zone.
Alfonso De Pablos, a technical analyst at All Star Charts, highlighted in an X post that this was QQQ’s second-longest streak of being above its 200-day moving average in the history.
According to Charlie Bilello, the chief market strategist at Creative Planning, the index returned 73% during this period.
Price Action: Nasdaq 100 slipped 2.79% on Thursday, whereas QQQ declined by 2.75%. On the other hand, the ETF tracking S&P 500 index, SPDR S&P 500 ETF Trust SPY declined 1.78% on Thursday.
In premarket on Friday, QQQ advanced 0.62% to $491.25 and SPY was up 0.39% to $574.94.
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