Nasdaq is approaching key support: 2040

jli

After dropping 52 pts today, Nasdaq is only 5 points away from the key support: 2040, which was the Oct. 2 low.
As seen from the daily chart, breaking below 2040 would open the door for Nasdaq to test 1960.

Are we going to see oversold bounce early next week, since the market is oversold?  It's hard to say. First, ADX is starting to be turning up, which means a strong downtrend is being developed. If the downtrend is strong, the oversold bounce could come late.
Second, from Bpcompq, the market breadth is very negative. The downtrend is picking up the momentum and could go much lower than you could expect before a tradable bounce.

In the current situation, playing oversold bounce with long position is very risky, since the oversold bounce could come late and could be shallow.  The best strategy would be shorting at the bounce or shorting at breaking down from the major support. In either case, make sure to use stops to portect your capital.