A Comprehensive Short and Long-Term Technical Analysis of the Nasdaq

ETFguide

The Nasdaq-100 (NasdaqGM:QQQ - News) has been the MVP on Wall Street. The all-tech index has led the rally from the October lows and the decline from the March highs.

As the MVP or alpha-male goes, so goes the rest.  So it's a good idea to take a closer look at the Nasdaq-100.

Long-Term Analysis

A special ETF Profit Strategy Newsletter update on February 20, 2012 examined all major U.S. indexes in the search for "speed bumps" – areas that are likely to stall and possibly reverse the uptrend.

The bottom line for all indexes was expressed as follows: "The common denominator between various indexes is that the next big resistance (should the S&P move above 1,369) is about 5 – 6% higher than Friday's (February 17) closing price (8.57% for the Nasdaq-100). The weight of the trend line and Fibonacci evidence outlined above, therefore suggests that the highest probability for stocks to stall or reverse is either right about now or about 5 – 6% from Friday's close."

None of the indexes reversed in February and the move above resistance S&P (SNP:^GSPC - News) 1,369 suggested another 5 - 6% rally for the S&P (NYSEArca:SPY - News) and another 8 - 9% rally for the Nasdaq-100, which is what happened.

About the Nasdaq-100's up side target specifically the February 20 ETF Profit Strategy update stated that: "The Nasdaq-100 has already moved above its respective parallel channel at 2,400. The next major resistance for the Nasdaq-100 is the 50% Fibonacci retracement at 2,805.80, which is 8.57% away from Friday's close (2,584.24). A close below the lower short-term trend line channel support at 2,560 could ignite a wave of selling and a quick decline."

The chart below (an update to the chart featured on February 20) shows that the Nasdaq-100 (Nasdaq:^IXIC - News) came within 10 points of the 2,805 resistance before making a U-turn. As expected, the close below trend channel support did ignite a wave of selling.

>> click here to view larger chart                          

View gallery

.
                       

From a long-term analytical point of view the Nasdaq-100 came close enough to resistance to mark a major top, but since it did not quite touch resistance we are allowing for a retest and possible break above 2,805.

Short-Term Analysis

The chart below zooms in on the Nasdaq-100 rally from the December lows.

>> click here to view larger chart                         

View gallery

.

We see a narrow trend channel leading up to the March high. The red line highlights resistance, the green line support and the upper blue line the 2,805 target. Selling intensified as soon as the index came close to the target and broke below trend line support (on April 9th).

Here are a few chart details that merit our attention (see chart for corresponding numbers):

1) The Nasdaq-100 declined from its highs in a hurry and left open chart gaps at 2,770 and 2,649. The stock market has a tendency to close open chart gaps.

2) The Nasdaq-100 may have created a bullish island reversal with Wednesday's post Apple earnings pop. A similar island reversal on March 6 led to new recovery highs.

This Monday's ETF Profit Strategy update suggested a repeat gap up open and mentioned that: "A similar gap up open that pushes above the 50-day SMA at 2,676 and the minor trend line at 2,682 would again resurrect some bullish options."

3) Yesterday's pop carried the Nasdaq-100 above a downward trend channel, but prices have thus far stayed below resistance (dotted yellow line).

How to Make Sense of This

Quite frankly, the current technical picture of the Nasdaq makes any confident forecast difficult. That doesn't mean however, that looking at technicals (even under the most trying of circumstances) is wasted time.

At the very least, we know that there is no high probability trading set right now, and with right now, I mean right now, because this can change quickly.

Investors need to know when it's time to buy, time to sell and time to conserve cash; when in doubt stay out. That's the case right now.

However, the market is dynamic and a move above resistance or below support can quickly change things. In fact one set of indicators suggests a huge move ahead (see yesterday's ETF Profit Strategy update for details).

The ETF Profit Strategy Newsletter identifies short-term support and resistance levels and combines them with a short, mid and long-term forecast to highlight high probability buy/sell recommendations.



More From ETFguide.com

Rates

View Comments (3)