Detailed Chart Analysis Shows Where the Nasdaq is Headed
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. The chart analysis is split up in long and short-term. I think you'll find it amazing how well the Nasdaq has 1) respected support/resistance levels and 2) is forced to repeat past patterns.
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 is about 5 - 6% higher than Friday's (February 17) closing price (8.57% for the Nasdaq-100). The next major resistance for the Nasdaq-100 is 2,805."
From the February 17 close the S&P (SNP:^GSPC - News) rallied 4.4%, the Nasdaq-100 rallied 8.2%. 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.
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 have been allowing for a retest and possible break above 2,805. In fact, recent market action (and ETF Profit Strategy updates) have suggested higher prices.
Short-Term Analysis
The chart below zooms in on the Nasdaq-100 rally from the December lows.
We see a narrow trend channel leading up to the March high. Selling intensified as soon as the index came close to the target and broke below trend line support (on April 9th).
However, there were a number of reasons to expect the decline to be shallow:
1) On April 3 the Nasdaq declined over night and created an open chart gap at 2,770. The April 4 ETF Profit Strategy update stated that: "Open chart gaps have a strong tendency to be filled. The down side for the Nasdaq is limited."
2) Following Apple's earnings, the Nasdaq jumped higher on April 25 thereby creating a bullish island reversal. Even before the island reversal happened, the April 23 ETF Profit Strategy update predicted that: "We had a similar gap down event on March 6, This was followed by a gap up open that created a bullish reversal."
Summary
Technicals suggested all along that the Nasdaq's (and by extension the stock market's) correction would be shallow. Recent technical developments suggested higher prices and new highs.
Sunday's (April 29) ETF Profit Strategy Newsletter highlighted support at 2,715 and resistance at 2,750 with this forecast: "The balance of data suggests more up side ahead for stocks, however seasonality is bearish so the net result may be a slow and fluctuating grind higher."
How high? Will a strong decline wipe out any gains? The ETF Profit Strategy Newsletter provides a short and long-term target for the Nasdaq and S&P 500 (NYSEArca:SPY - News) and identifies short-term support and resistance levels that increase the accuracy of any forecast.
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