The price of the Nasdaq composite recently started developing a new bearish correction, as was forecasted by our previous analysis of the index. Even still, the broader rally still looks quite solid, which means that bulls can look for an opportunity to enter long at the bottom of the correction by implementing trend continuation strategies.
While there wasn't a single comprehensive catalyst for the dropdown, a bundle of contributing factors led to the sizable dive. For one, the pace of the global economic recovery is surpassing the preliminary forecasts, which is why uncertainty diminished over the last several weeks. Because of that, more and more central banks are becoming increasingly more hawkish in their policy statements, hinting at an eventual dialling back of their quantitative easing programmes.
It was precisely the massively accommodative monetary policy stance of the FED that served as the primary cause of Nasdaq's rally in the wake of the initial coronavirus crash. Yet, the impact of FED's liquidity-pumping programmes is likely to have an increasingly smaller imprint on the rally of the Nasdaq. That is why the current correction could be extended even lower before it eventually bottoms out.
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