SAN DIEGO (ETFguide.com) - The Nasdaq-100 (NasdaqGM: QQQ) 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) 1,369 suggested another 5 - 6%
rally for the S&P (NYSEArca: SPY) 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) 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.
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.
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.