Nasdaq Technical Update: Technology-Driven Index Poised to Retest 2018 High

Nasdaq

Technical Overview

  • On Tuesday (May 15), NASDAQ retested and held above the 7,320 level (April’s high – white horizontal trendline and white arrow in Figure 1).
  • Over the next 5 trading sessions, the index oscillated within a tight 90-point range (7,340 – 7,430). This price action was considered constructive as the consolidation occurred above short-term support.
  • Today (May 23), the index opened over 40 points lower, with an intraday low of 7,335, and moved up throughout the entire trading session. As the index opened at the daily low and closed at the daily high, it formed a white Marubozu candle (i.e. the candle has no upper or lower wick). While I haven’t done extensive testing on the pattern, other technicians have found the one-day pattern to carry almost no predictive power. It is the location of the candle that matters the most. Had it occurred just below a major resistance or after a sharp decline (i.e. indicating a “relief-rally”), the pattern may have proved to be insignificant. However, given the intraday low came less than 15 points away from the key 7,320 level, before moving sharply higher for the rest of the day, the pattern is deemed very significant.

Support levels:

  • The 8 EMA (yellow line, currently at 7,378).
  • The lower support of the large trading channel, currently at 7,360 and rising by roughly 7 points/day (green trendline; only lower support shown to avoid overcrowding of the chart).
  • The 7,320 level (April’s high)
  • The intermediate-term support (ITS – violet trendline), currently at 6,990.

Resistance levels:

  • The May 14 high (7,458).
  • The 2018 high (7,600 – 7,637) range

Figure 1. NASDAQ Daily Chart

Implications

  • Today’s move is expected to mark the beginning of the leg-up that retests the 2018 high. The index needs to move above the May 14 high (purple horizontal trendline) to confirm and activate a short-term upside target of 7,600 (i.e. just below the 2018 high).
  • 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 (violet trendline).
  • Long-term bearish if the index breaks below the ITS.

Featured image courtesy of Shutterstock. 

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