• Nasdaq ETF (QQQ) collapsed 4% on Monday in panic selling.
  • Nasdaq futures currently indicating a bounce on Tuesday.
  • QQQ is now down 25% so far in 2022.

The Nasdaq 100 remains the underperformer of the main US indices and this pressure was again evident on Monday. The Nasdaq shed 4% while the S&P 500 (SPY) lost 3%. It was a panic-selling related move, with over 90% of stocks listed in New York closing in the red. 90% down days are often cited as panic selling.

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We already had a 90% down day last week on Thursday and another one so soon usually indicates market panic and more losses to come. Certainly, it feels that way but things can change quickly in the market and hopes are high that Wednesday's US CPI release could be the catalyst.

Nasdaq futures, ETF (QQQ) news: Credit spreads indicate heavy stress

So what brought on Monday's panic? Friday had not exactly finished well. The US employment report was as good as equity investors could have hoped for. A strong labor market and wage growth coming in slightly lower than expected. Equity futures rallied, bond yields fell and the US dollar dropped. But something went wrong midway through Friday afternoon and the main indices were staring at major losses before some position closing ahead of the weekend saw a modest recovery.

While bond-market yields actually decreased as Monday wore on, credit spreads widened further indicating more stress in the financial system may be on the cards. Credit spreads are the extra premium over the US 10-year yield that corporates have to pay to reflect their higher risk versus the US Treasury. That was partly the reason. Once selling began, it lead to momentum selling, and combined with poor liquidity the equity losses were magnified.

Other reasons behind the fall were oil stocks also cracking. The energy sector (XLE) remains the best-performing one of the year but fell sharply on Monday. Fears over a slowdown in Chinese demand hit oil and had a knock-on effect on the energy sector. This relative safe haven lost 8% on Monday and was by some distance the worst-performing sector. With no equity safe-haven, investors just dumped everything equity-related.

The Junk ETF chart below gives an idea of the credit spread. Junk bond yields have widened hugely versus US treasuries this year as investors shy away from risk. 

Junk bond stocks ETF chart

JNK ETF chart, daily

Nasdaq (QQQ) forecast: Bear-market rally imminent?

A perfect move on Monday to test support from the lows in March 2021. Can these hold? We do have some divergence from the RSI, so a bear-market rally may be imminent. Already Nasdaq futures are trading some 1% higher on Tuesday. $316 for Nasdaq ETF (QQQ) is the bearish pivot, above is neutral. 

Nasdaq ETF QQQ daily chart

Nasdaq (QQQ) chart, daily

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