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The Nasdaq Composite Index was bouncing up almost 1% higher on Thursday, in relief, after suffering its worst first week of December since 1975, plunging 4.4% between the Nov. 30 closing price and the session finish on Wednesday.
With the stock market entering a bear cycle this year, most retail traders and investors have been hoping for an end-of-year rally to finish 2023 off on a higher note.
While the Nasdaq and the S&P 500 have been trading in very consistent monthly downtrends since November 2021 and January 2022, the S&P 500 temporarily crossed above the 200-day simple moving average on Nov. 30, bringing hope the bear market could end.
The S&P 500’s short three-day breach of the 200-day proved to be a bull trap, however, and the ETF has since declined back under the area, indicating the bears have not yet headed into hibernation.
The Nasdaq has shown weakness in comparison to the S&P 500 due to tech stocks taking the brunt of the selling pressure this year. For technical traders, the Nasdaq’s comparative weakness, led lower by Amazon.com, Inc. (NASDAQ:AMZN) and Tesla Inc (NASDAQ:TSLA) was a warning sign that the bulls were too weak to take back control.
Despite the weakness, a Santa Claus rally remains a possibility as the back half of December approaches and traders will be watching to see if the rally, if it happens, is strong enough to signal there’s enough bullish momentum to break the bear cycle.
To judge this, technical traders will be watching Nasdaq 100 E-Mini Futures (NQ1) for signs of strength into the end of the year. Specifically, bullish traders want to see NQ1 continue to hold above the 50-day SMA, which could cause it to reverse course and rebound up into the 200-day.
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The NQ1 Chart: NQ1 dropped to tag the 50-day SMA on Wednesday and Thursday and has so far held support at the level. Bears want to see a larger bearish volume come in to force NQ1 under the 50-day, which could set the index into a steeper downtrend.
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Photo: Roman Samborskyi via Shutterstock