NASDAQ Technical Update – Shift in Short-Term Outlook

The importance of the NASDAQ’s intermediate-term support cannot be understated – both the February and mid-March corrections terminated at it (intermediate-term support (ITS) – violet trendline; Feb 9 and April 2 lows – last two violet arrows in Figure 1). The successful retests only further validated the significance of the trendline and the implications of the index’s eventual breakdown. However, recent price action, particularly since Apple’s stellar 2Q18 report, suggests that at least one more leg-up is in the cards before the ITS is broken to the downside.

Technical Overview

  • On Thursday (May 3), the index bounced off the 7,000 level before reversing by EOD and pushing sharply higher on Friday.
  • Friday’s up-move took the index above its short-term resistance (trendline connecting the March and April highs – orange trendline).
  • On Monday (May 7) and Tuesday, the index retested the lower support of its large trading channel but remained below it (green trendline; only lower support shown to avoid overcrowding of the chart).
  • Today, the index broke above two key resistance levels:
    • The 7,320 level (the April 18 high – white vertical line).
    • The lower support of the large trading channel (green trendline).
  • Major support levels:
    • The two broken resistance levels are now expected to serve as supports.
    • The ITS, currently at 6,935.
  • Major resistance level:
    • The 7,474 – 7,637 range (i.e.the range or prices prior to the down-gap of the island reversal in March; island reversal – middle red ellipse; down gap – white arrow).

Figure 1. NASDAQ Daily Chart

Implications

  • The index’s price action over the last five trading sessions, coupled with DJIA completing a bottoming pattern of its own, points to the index pushing higher, to at least retest the 7,475 – 7,600 range.
  • Small long positions in index-tracking ETFs or constituents can be initiated at current levels.

Outlook

  • Short-term bullish while the index is trading below its March high and above its ITS.
  • Long-term bullish if the index breaks above its March high. The implications of such a move will be discussed if the index pushes above 7,637.
  • Short- and long-term bearish if the index breaks below its ITS.

Featured image courtesy of Shutterstock. 

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