Nasdaq Technical Update: Index Declines but Remains above Key Supports

Technical Overview

  • Yesterday (May 14), the Nasdaq Composite Index opened higher, continued its ascent for the first 75 minutes of trading, before reversing and closing the day just marginally up. The intraday high of 7,458 came just 5 points away from the bottom of the mid-March island reversal (island reversal – middle red ellipse in Figure 1), and 15 away from filling the down-gap of the pattern (down gap – red arrow).
  • Today, the index gapped down, opening just above 7.360, and oscillated between the 7,320 – 7,360 range throughout the session.
  • The lower boundary of today’s intraday range (7,320) is of great technical significance as:
    1. It marks April’s high (white horizontal trendline and white arrow).
    2. The lower support of the large trading channel is currently sitting at just above 7,323 (green trendline; only lower support shown to avoid overcrowding of the chart).
  • The index finding support at roughly 7,320 on three occasions during the day is considered technically constructive.

Major support levels:

  • The lower support of the large trading channel, currently at 7,323 and rising by roughly 6 points/day.
  • 7,320 (April’s high)
  • The intermediate-term support (ITS – violet trendline), currently at 6,960.

Major resistance levels:

  • The 180-point range spanning from yesterday’s high of 7,458 to the March high of 7,637.

Figure 1. Nasdaq Daily Chart

Implications

  • After logging a more than 450-point gain over 8 trading sessions (since the intraday low on May 3) and reaching the base of the March island reversal, the index was bound to correct. Today’s price action, however, is considered constructive to a degree as the index found support at two major support levels.
  • Long positions in index-tracking ETFs or constituents recommended as long as the index remains above 7,320.

Outlook

  • Short-term bullish above 7,320.
  • Long-term bullish if the index breaks above its March high.
  • Short-term neutral if the index breaks below 7,320 but remains above its ITS.
  • Long-term bearish if the index breaks below the ITS.

Featured image courtesy of Shutterstock.

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