Here’s the key consideration for short-term stock traders after Tuesday’s modest pullback, Fawad Razaqzada, analyst at City Index and Forex.com, said in a Wednesday morning note: “Betting against the market has proved to be very costly this year, with all sorts of dips being bought fairly quickly. But is this another such scenario or is it different this time around — especially with the U.S. presidential election now just three weeks away?”
The stock market has been remarkably resilient in recent weeks, shaking off developments that seemingly should have sparked a selloff, such as hotter U.S. inflation data, rising bond yields, geopolitical tensions, recession fears and a slowing Chinese economy, Razaqzada argued. Instead, the S&P 500 has continued to hit record highs. The Nasdaq-100 has failed to follow suit but moved closer to its July peak before Tuesday’s chip-led pullback.
“For bearish traders, what is important is follow-though now. If we see further weakness in the coming days, causing the breakdown of some key short-term support levels, only then will traders have a solid reason to start selling,” he wrote. “The bulls, meanwhile, should tread extra carefully, tightening stop losses and watching for any sudden shifts, especially as we get closer to the election date.”
For the Nasdaq 100, key support is between 20,000 and 20,120, the analyst said, while a push past resistance at 20,210 and 20,325 would set up the next upside target at 20,500, followed by the July high at 20,759. But if support at 20,000 gives way, the index could fall back to the 19,635-19,715 range, which would justify a more cautious stance.