Talking Numbers

Why the Nasdaq could be setting up for a big decline

Why the Nasdaq could be setting up for a big decline

Talk about a textbook bounce.

After nearing a 10 percent correction, the Nasdaq Composite touched its 200-day moving average and has since rallied 140-points (and who said technicals don't matter?).

"There's a reason why we look at the 200-day on almost every chart here on Talking Numbers, because it works. It's worked for over 100 years and yesterday was a great example," said Richard Ross of Auerbach Grayson.

(For more information on moving averages, be sure to check out our learning center.)

So, will the support hold? And is the correction over?

(Read: US stocks close at session highs)

According to Ross, we aren't out of the woods just yet. "I see some short-term upside, but I think resistance is going to come back into play up around 4,150," he said, comparing the recent action in the Nasdaq to that of 2011. "Back then, we saw a head and shoulders top, which ultimately lead to a 20 percent decline. Ultimately I think we move significantly lower."

Gina Sanchez, CNBC Contributor and Founder of Chantico Global agrees that the Nasdaq could head lower, noting the recent decline in momentum stocks such as Netflix and Tesla play a role. "The highest P/E stocks are getting destroyed. And there you have plenty of room to go [down]," she said. "There's definitely more P/E vulnerability than I think people are owning right now."

(Read: Google earnings miss Street, shares drop 6%)

Check out the video for the full discussion with Ross and Sanchez.

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