NASDAQ Correction or Start of Something Bigger?

qqq nasdaq 100 etf trading decline lower stock market correction image

While the financial world waits for Nvidia (NVDA) earnings and watches a nasdaq correction in many of the Magnificent 7 and other related tech stocks, a lot of noise erupts.

The biggest noise is whether this is the top.

Those of you who are familiar with our work at know that we use risk gauges to help us differentiate between a nasdaq correction and major stock market sell-off.

Looking at the NASDAQ chart through the QQQ etf, the price broke below the fast-moving average.

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However, it remains well above the 50-day moving average and the January 6-month calendar range high.

Real motion (the momentum indicator) shows a decline with momentum with a bearish divergence to price. The NASDAQ is now underperforming the S&P 500 etf (SPY). This leaves a mixed technical picture.

Looking just at the price we must go with correction. 

NVDA could easily reverse this path with a beat and a huge spike higher.

Or not.

However, we do have some pause here, considering the weaker momentum and lack of leadership.

Of course, this could be a rotation. However, none of the major indices or sectors performed well EXCEPT…

hug high yield bond fund etf trading decline investment concern image

The junk bonds etf (high yield, high debt bonds) closed green.

In the chart, the price shows it scraping against the 50-day moving average. To get more bullish or see more of a risk on environment, the price should clear back over the 50-day moving average.

Momentum is flat to price, both just under the 50-day moving average.

The important part of this chart is Leadership. With HYG outperforming TLT (the long bonds), we can safely say the market remains risk on. Should that change, then we expect a much deeper correction. 

However, should HYG hold up and better still, clear over the 50-DMA, then most likely, ahead of NVDA, the market is giving traders an opportunity to buy the best stocks a bit cheaper.

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.