Nasdaq 100: Traders Eye 200-Day MA as Oil Holds Near $100 Today

U.S. Stocks Sharply Lower but Stabilizing as Oil Holds Above $100

The major U.S. stock indexes are sharply lower shortly after the opening on Monday, but trading mostly steady since the even steeper losses from earlier in the session.

Traders are closely monitoring the price action in crude oil. The $100 level is what they are watching. A sustained move over this level can cause problems with the economy including inflation and slower growth. As long as investors are worried about these issues, the harder it will be for the index to recover key support and resistance areas. I don’t see how individual stocks can turnaround the market since oil is the catalyst.

Nasdaq Tests a Critical Long-Term Value Zone

The Nasdaq Composite Index (IXIC) is currently testing a long-term retracement zone at 22,290.08 to 21,881.82. The index is also straddling the 200-day moving average at 22,102.56. The combination of these technical tools indicate that this is the key area to focus on for the start of the next major move.

Bullish traders consider this area to be a value zone. What I’d like to see inside this zone is consolidation. The bigger the base, the better the rally. However, given that investors have been shedding assets to get here, we’re going to need a major catalyst to turn the trend around. Without a solid support base and some bullish news, investors are likely to remain in “sell the rally” mode.

The 200-Day Moving Average Sets the Tone

Today’s intraday direction is likely to be determined by trader reaction to the 200-day MA. A sustained move over this level will indicate the presence of buyers. Overcoming the 50% level at 22,290.08 will indicate the buying is getting stronger. This could fuel additional short-covering, however, since the rally is just a reaction to the 200-day MA, it’s not likely to last and more likely to attract selling. As I wrote earlier, building a support base around the key moving average will generate a better buy signal.

Crossing to the weak side of the moving average with enough downside momentum could drive the index into the Fibonacci level at 21,881.82. If this fails, there is a strong chance of an even steeper near-term break.

Nasdaq-100 Futures: Bottom-Pickers Step In at 24,000

We have a similar pattern developing on the March E-mini Nasdaq-100 Index chart. Earlier in the session, the futures contract plunged through the 200-day moving average at 24,613.36, a pair of bottoms at 24,352.00 and 24,239.75 and the November 21 main bottom at 24,153.50. However, bottom-pickers came in to scoop up the market at 24,000.00. It’s currently testing the 200-day MA. Overcoming it will indicate the buying is getting stronger with a trend line at 24,970.00 the next major target.

Sell the Rally Mode Until a Major Catalyst Appears

We’ve seen this “buy the dip” strategy several times over the past week, and like I said earlier it’s not likely to work without a solid support base. So I think “sell the rally” traders will eventually prevail without a major catalyst to reverse the downside momentum.

Into the mid-session, watch the reaction to the 200-day MA and oil prices for direction.

More Information in our Economic Calendar.