Nasdaq: The real test comes when Wall Street opens [Video]

Nasdaq took quite a tumble yesterday, closing on the 23.6% Fibonacci retracement at 28,894. Overnight trading has seen further weakness, slipping to around 28,400 and briefly testing the S2 pivot at 28,471.

However, the real test comes when Wall Street opens. That's when we'll get a much clearer picture of whether this is simply profit-taking or the start of a deeper correction.

The Nasdaq often leads the direction of the US equity markets, yet the S&P 500 has remained relatively resilient, continuing to hold above its 55-day moving average around 7,459. Meanwhile, the Dow Jones is also beginning to look a little toppy.

Momentum is also beginning to diverge. The S&P's stochastics are rolling over from overbought territory, while both the Nasdaq and Dow have turned bearish from much more neutral levels. That suggests selling pressure may be broadening, but today's US session will be key.

One additional factor to bear in mind is the time of year. Next week is likely to be the final full trading week for many market participants before the summer holiday period. As liquidity begins to thin, markets can become more erratic, with relatively small orders having a greater impact on price. That doesn't necessarily mean the trend changes, but it can increase volatility and produce exaggerated moves.