Posted by: joetradingplace | June 13, 2012

A technical peek at the Nasdaq

Author: Serge Berger, http://thesteadytrader.com/

follow on twitter:https://twitter.com/#!/SteadyTrader

 

In the early innings of 2012 the Nasdaq was the trend-setter and place to be for momentum investors and adrenaline- junkie-traders alike.  I cautioned investors for much of the rally that such a vertical move especially when more or less based on one stock (Apple) will at the very least mean-revert over time.  I further noted that such a correction will likely be volatile investors with weak hands will be forced to sell their long positions into the hole.

As in the meantime my cautionary stands has paid off it is time to revisit the charts.  While I am referring to the Nasdaq itself, for technical analysis purposes I will be using the Nasdaq 100 as it a) closely resembles the Nasdaq and b) lends itself better for technical analysis.

The correlation between Apple (Nasdaq: AAPL) and the Nasdaq 100 is unmistakably high and likely will remain so for the foreseeable future.

To get a bird’s eye perspective of the Nasdaq 100 lets look at a weekly chart.  As of June 4th the index retraced exactly 61.8% (Fibonacci retracement) of the rally from mid December to early April near 2440, which also coincided with the 200 qday moving average.  In 2011 the Nasdaq 100 traded in a range between 2050 at the low end and 2440 on the high end.  Once the 2440 level was broken to the upside in January it was off to the races but eventually that said breakout level was retested.  The 2440 area is of substantial significance.

While the recent lows on June 4th were notable what is still missing for a better bottom is divergence between price and the stochastics oscillator on the weekly chart.  When a price low coincidences with a momentum low it rarely marks the real bottom of a swing.

At the same time commodities play an important part as leading indicators and they have yet to signal positive divergence (relative strength) to stocks.  As such stocks have further downside potential and for the Nasdaq 100 that could mean it falls back into the 2011 trading range before finding better footing.

Last but not least, on the daily chart of the Nasdaq 100 there is notable resistance near 2570 and if broken to the upside the 50 day moving average currently at 2630 may offer the next  layer of resistance.  A clear break above there would give the Nasdaq 100 a better bullish stands.

 

 

 

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