The Nasdaq Composite index has completed a technical top formation / closed below key support which has generated a technical sell signal. The index technical outlook has turned negative. The minimum downside target is located at 5810.
As detailed in a recent Wire, the index had been overbought on a momentum/ RSI basis and located near key resistance of the long-term upward trend channel that originated in 2008 - which had been reason for caution relating to the sustainability of the rally (refer to long-term chart below).
The RSI is not a timing or turning point indicator - it flags overbought situations, but does not provide an indication of when this overbought situation is likely to correct. A technical top formation is the requirement to indicate that the corrective phase has commenced and to generate a technical sell signal and this occurred overnight.