The Nasdaq Composite index has advanced considerably over the past few weeks, even though the underlying sentiment is not ostensibly trending. This is caused by mounting adverse volatility in the market. These erratic fluctuations could prompt a broader bearish correction in the near future.
Selling pressure continued to accumulate yesterday following Jerome Powell's, Chair of the Federal Reserve, testimony before the U.S. Senate. He testified on FED's current monetary policy stance, and the markets reacted to the speech by betting against the U.S. dollar.
Despite upbeat growth data, general liquidity remains subdued due to the impact of market seasonality. This could catalyse another bearish correction as adverse volatility takes hold of the stock market.
As can be seen on the daily chart below, the price action is coming close to completing a major ABCD pattern, which implies the likelihood of such a bearish reversal. The prominence of this structure stems from the fact that its impulse and retracement legs are proportional to each other.
The distance between the dips at A and C is 0.618 per cent, which is a Fibonacci retracement. It can also be seen that the final impulse leg (CD) is drawing near to completion. This can be inferred from the fact that the price action is coming very close to the point where the distance between the peaks at B and D would be 1.618 per cent.
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