The NASDAQ index is experiencing the greatest decline among major indices, currently down by 187 points or 0.87%, at 21,126.36. It is testing its 200-hour moving average, a break below which could indicate further downturns.
Earlier, on August 1, the index fell sharply after the US jobs report but recovered rapidly, leading to an all-time high of 21,803.75 by August 12. Should it fall below the 200-hour moving average, traders may focus on the 38.2% retracement level of 20,864.09 from the June 23 low.
The S&P Index Decline
The S&P index is also declining, testing its 100-hour moving average at 6,382.38, currently below this level at 6,378.00. A sustained decline could shift focus to its 200-hour moving average, standing at 6,350.92.
Currently, the NASDAQ index has broken past its 200-hour moving average, reaching a low of 21,003.44. It is now trading at 21,023.59, a decrease of 291 points, or 1.36%.
The NASDAQ has broken below its 200-hour moving average, a technical signal we view as bearish for the short term. This move suggests the recent pullback from the all-time high on August 12 has more room to run. We are also seeing the S&P 500 showing similar weakness as it trades below its own key moving averages.
This nervousness is reflected in the broader market, as we’ve seen the VIX, a measure of expected volatility, jump to over 19 in recent days. That is a significant move from the lows near 12 we saw earlier in the month. This shows that traders are actively buying protection against a potential decline in the coming weeks.
Market Sentiment and Strategies
However, we must remember what happened at the beginning of this month from our perspective in August 2025. The market gave a similar bearish signal after the August 1 jobs report, breaking the 200-hour MA, only to violently reverse and rally to new highs. This recent history suggests that the current break, while concerning, could also turn into a bear trap.
The current market sentiment appears linked to the July 2025 inflation report, which came in slightly hotter than anticipated at 3.4%, raising concerns about the Federal Reserve’s next move. This has dampened the optimism that followed a strong second-quarter earnings season. We believe these conflicting economic signals are causing the current indecision and volatility in the market.
For derivative traders, the rise in volatility means option premiums are now richer, making strategies that involve selling options more appealing. Given the potential for another sharp reversal, using defined-risk strategies like put debit spreads could be a prudent way to position for further downside. This allows us to target lower levels while capping our maximum loss if the market suddenly rallies.
The next major support level we are watching for the NASDAQ is the 20864 area. If the index continues to fall and breaks that level, it would strengthen the case for a deeper correction. We are also mindful that we are entering September, which, looking at data going back to 1950, has historically been the stock market’s weakest month of the year.
