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Will The Social Media Sector Selloff Drag Down the Nasdaq

Social media stocks have been taking it on the chin this week: Facebook – down, LinkedIn – down, Twitter – down.

The Global X Social Media Index ETF (SOCL) reflects this sad performance.

The Social Media ETF chart shows SOCL slicing below it’s 200 and 20-day SMA and the green support line.

Perhaps more importantly, Tuesday’s decline came on almost 5x average trading volume.

With a 20% rally from May to July, social media has been a leading sector.

What does this social media sell off mean for the Nasdaq-100 (QQQ)?

The chart below plots SOCL against the Nasdaq-100 and highlights periods of SOCL weakness.

A chart plotting SOCL against the S&P 500 is available here: SOCL vs S&P 500

A 28% March/April SOCL drop stifled the Nasdaq's performance as did most minor selloffs over the past year.

A market pullback often starts out with leading sectors losing steam. This could be the case here too.

But we don't even have to worry about the drag of social media unless (and until) the market falls below support. The S&P 500 (SPY) provides a pretty clear must hold support level right now. More details here:

S&P 500 Short-Term Forecast – Key Support Level

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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