You can see that the ~12900 level, which has represented support 6 different times this year, is now acting as resistance for the Nasdaq index. That’s the neckline of the head and shoulders top.

The Nasdaq got slammed today, losing 2.41% from its prior close, despite briefly rising all the way to 13001 in the morning. Intraday, it was a decline of over 3% from the day’s highs to the day’s lows (130001 to 12609).

So this means the market was completely unable to sustain the furious rally off the lows from Friday.

We have not yet seen capitulation in this sell-off, and that’s the scariest part for bulls. As I illustrated on the chart above, every dip has been bought. That means people are still bullish on the market and are trying to fight the trend.

Capitulation happens when bulls simply give up–or, rather, when even the most bullish bulls lose all hope and stop trying to buy the dip. It’s when they say, “fuck this, I’m done.”

And then the market really goes into freefall. Because nobody’s buying the dip at all anymore, and sellers just can’t find buyers.

That’s when selloffs actually end: when bulls lose all hope.

I don’t think we’ve seen that yet in the Nasdaq. Coupled with the fact that the neckline now appears to be hard resistance, I think we are going to see more downside.

Where could be the next level of support?

The ~12000 area acted as very strong resistance for the market from September to about mid-November, so now it will probably be treated as strong support. I would look for the market to bounce off of the 12000 floor. That would represent a total decline in the Nasdaq of about 15%.

If 12000 fails to hold, I’m looking at the ~10770 level as the next support, given that it acted as support during the choppy sideways trading in the fall. But that would equal a decline of about 24%, which is a pretty brutal drop.

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