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Nasdaq Hits Correction Territory: Now What?

The Nasdaq continues to underperform the S&P 500 and Dow this year. Let's look at the charts to see where support may be.

The Nasdaq has been a surprising laggard vs. the S&P 500. Generally it’s the other way around — and that's not too surprising.

However, over the past year the Nasdaq is up just 10.6% vs. the S&P 500’s gain of 20.95%.

Further, the S&P 500 is only down 4.3% from its all-time high, while the Nasdaq is down 9.1% — more than double the decline.

At the close on Wednesday, the Nasdaq was down 10.7% from its all-time high (made in December). That officially put it in correction territory.

For what it’s worth, a 20% decline is what it would take to consider the index to be in bear market territory — something growth stocks are unfortunately quite familiar with.

The Nasdaq has been underperforming the S&P 500 and the Dow on the downside all year, as rising rates continue to scare investors.

It doesn't help when more than one-third of Nasdaq stocks have already fallen by a whopping 50%

Trading the Nasdaq

Daily chart of the QQQ.

Daily chart of the QQQ.

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When trading the Nasdaq, let’s look at the Invesco QQQ Trust ETF  (QQQ) - Get PowerShares QQQ Trust Ser 1 Report because it’s the most accessible among investors.

Looking at the QQQ ETF, it came incredibly close to tagging the 200-day moving average. It’s too bad it didn’t gap down this morning to this level. It would have been much healthier price action.

Instead, we’re getting a gap-up and while the Nasdaq was trading well for the first few hours of the day, it’s trading quite poorly in the afternoon.

Even with today’s rally, the $374 to $375 area has been resistance. If the QQQ can’t stay above the $369.31 level, it will lose last week’s low.

That puts a weekly-down rotation in play and thus puts Wednesday’s low in play, along with the 200-day.

Should these measures fail to support the QQQ ETF for anything more than a temporary bounce, it could put the $360.69 gap-fill in play.

A move below that could open the door to the $358 to $359 zone, where the QQQ finds its 50-week moving average and the weekly VWAP measure.

As for the upside, the QQQ obviously has to push through recent resistance, which has been in the $375 area.

Above that opens the door to the declining 10-day moving average and the prior support zone between $377 and $379. Over $380 and the 21-week moving average could be in play.