NASDAQ: Intermediate-Term Trend Analysis – Has the Index Broken Down Already?

Nasdaq

Examining the intermediate-term and conducting trend analysis in an attempt to answer the question – has the NASDAQ broken down already?

No?

  • Intermediate-term support (or simply “ITS”- the trendline connecting the Brexit, pre-U.S. presidential election, the Feb 9 and April 2 lows – violet trendline and arrows in Figure 1) continues to serve as support during each significant correction. Most recently, it was on both April 2 and April 4 that the index bounced off of the ITS decisively.
  • The index is still trading above its 200 SMA. Used as a proxy for the long-term trend, it is hard to imagine one concluding that the index has already broken down given that the 200 SMA lies below it.

Figure 1. NASDAQ Daily with ITS

Yes?

  • While the ITS is arguably NASDAQ’s most-significant trendline, examining NASDAQ’s price action since the “Trump Rally” began in November 2016, it appears that the trendline (or trendlines) which carried the index higher have already been broken. More specifically, throughout most of the last two years, the index moved higher within a well-defined double-support, double-resistance channel (supports – green trendlines, resistances – red trendlines in Figure 2). Note, all trendlines are parallel. The importance of this slope is magnified by the fact that various other parallel lines (internal supports and resistances – bright blue lines) have served as inflection points during the ascent. Upward trading channels are often expected to break to the upside before finally breaking down. This is exactly what happened in January. First, the index moved beyond the upper resistance for a few trading sessions, however, as soon as the index re-entered the channel it swiftly moved to retest the lower support.
  • The 100 SMA, which served as support during the Dec’16, Aug’17 and Feb’18 corrections (green arrows in Figure 3; note that the break below the moving average on Feb 8 failed as the index moved immediately back above it on Feb 9) has now served as a resistance for over two weeks (red arrows).

Figure 2. NASDAQ Daily with Channel

Figure 3. NASDAQ Daily with 100 SMA

 

Conclusion and Outlook

To the downside, if NASDAQ breaks the ITS and the 200 SMA (which should not be ignored despite it not being as significant as the 100 SMA over the last 2 years), the index is expected to slide to at least 6,475 and possibly all the way to the 6,000 area. To the upside, the index needs to break the 100 SMA in order to see a 200-point rally and potentially move back within its large trading channel. Analysis of target projections to be published once the index closes either below the ITS or above its 100 SMA.

 Featured image courtesy of Shutterstock. 

Author:
http://www.linkedin.com/in/konstantindimov