By Kathryn James
There appears to be a few technical warning signs echoing from the world of technology not to be dismissed. These can be seen in the lacklustre and tired price action of the Nasdaq 100 chart lately. The daily chart has pulled back recently but whether this is a healthy correction to rejuvenate the uptrend as yet remains to be seen. However, potential trend reversal warning shots have been fired in a test of the 200-day moving average and a break of the uptrend from the volatile lows seen at the end of 2011.
It’s a little too early to tell whether this is the start of a reversal or merely a healthy correction before a resumption of trend and the weekly chart of the Nasdaq 100 shows the strong uptrend from the 2009 lows is still intact.But this trend line is moving closer to the price action and further falls or sideways consolidation would see an imminent break which could spark further concern among some market participants.
Support resides around 2400-2450, the last reaction low was 2458 on 1st June and I would be cautious of a reversal of trend if this level and then support at 2400 were to fail, marking a lower low on the chart.A classic technical sign of waning momentum in trend is seen in the MACD on the weekly chart, there appears a negative divergence, where the recent high price was not confirmed by the indicator.
The market appears near an interesting juncture, further fuel is required to send stocks higher and maintain the uptrend but the trend appears tired as moving averages and trend lines converge together on the price action.For now, I’m watching 2400 for support and expecting the uptrend from the 2009 lows to be broken fairly soon.
By Kathryn James
On Tuesday the Nasdaq 100 made a new yearly high of 2802, the index is now up over 20% for 2012 and for the second time this year, the previous high being 2795 on 2nd April. Investors lucky enough to grab the March 2009 low of 1040 will have seen a spectacular return of over 160%. This naturally should be placed in context against the wider perspective incorporating the steep declines of 2008 and the fact that only a small percentage of investors would have actually managed to catch and stick with that move perfectly!
All this highlights the extreme volatility of a skittish stock market over the past 5 years, that has left many investors and traders feeling that this path created has morphed into a hopeless cycle of ‘solutions’ to avoid the pain of a reality check from an excessive worldwide debt binge that has nailed us. Ironically for the policy-makers this avoidance of moral reaction has only served to increase the levels of worry and anxiety among investors - even when the market is rising.
The Nasdaq 100 price has pulled back from its highs since Tuesday and the uptrend from the July lows is being put to the test. This trend line is steep and the rally is looking tired after hitting resistance, so an imminent break of this support line is likely with a push back to test 2700, which I’ll be watching closely for signs of support.
Hourly chart
Daily chart
By Kathryn James
Apple is a leader; in innovation, design, inspiration and motivation. Being one of the most popular stock holdings of fund managers, most people probably have (perhaps some without knowledge,) a piece of Apple’s pie in their pension or other investment holdings. Other people not invested in the markets, such as the young or less financially astute, more than likely own a slice of Apple innovation or two. So it’s probably safe to say that the market for Apple may be close to saturation or perhaps already there.
Charts are a cycle of market emotion and none so clear as the tale of Apple, this tale can also be seen in the Nasdaq 100 chart. The move higher into April was full of hope and high expectations but as the economic news worm starts to turn, hopes are dashed as investors shift their game and take on a more defensive stance.
The Apple chart tells the story. From the $310 low in June 2011 and in less than one year, the Apple share price gained 107% to hit the all-time high of $644 on 10th April. Less than a week later it was down 10% from those dizzy heights in a swift, sharp and volatile move. The fever for a slice of Apple and its products has been fervent and impassioned and the untimely passing of Steve Jobs served to stoke the emotional desire even more. Today Apple’s share price has filled the open gap from March and broken $565 which is the 23.6% Fibonacci support level – measured from the June2011 lows. The next and more significant Fibonacci level is 38.2% at $516. The 200 day moving average sits around $440 which is a long way down from the current price.
The Nasdaq has rallied a massive 36% from the 2011 lows to the April highs with Apple’s advance raising the bar for the index, but now with the weight of Apple pulling from the other side it’s proving a tall order for the index to live up to. The Gaps on the Nasdaq chart are a telling sign. The gap up at the end of March on the daily chart, after a magnificent run, highlighted that the trend was waning as late investors joined the long-in-the-tooth rally. Today, the Nasdaq has gapped down, a sign that momentum in the decline is gaining pace as the breakaway move signals a change of trend.
In conclusion, Apple has led the march higher in technology, emotionally and with heartfelt earnest but as reality sets in the weight of an Apple correction is proving too much for the Nasdaq to handle. The technical chart signs of Apple and the Nasdaq 100 are toppy with indications pointing to a reversal of trend.
By Kathryn James
The inverse head and shoulders on the daily Nasdaq, mentioned last week, (see post) achieved its target of 2790 during yesterday’s trade. With targets achieved market technicians trading this breakout should be looking to pare back positions and take some profits from the table now.
The undeviating nature of the uptrend since the breakout of the neckline at 2412, has offered traders who caught this move little cause for concern and a nice comfortable return. However, complacency is firmly in place as investors chase an already extended tape and it’s exactly for this reason that we should be extra vigilant for technical signs of an end or pause to this bullish trend.
One sign that flagged bearish caution yesterday was the sell-off in the S&P 500 in the last hour of trade in the US – a good indication of profit taking by traders unwilling to hold positions overnight.
Bulls who wish to give their trades more room for manoeuvre should trail their stops up accordingly, in order to protect from downside risk. There is still the potential target of 3100 on the longer-term monthly chart and a slim chance that this could be achieved in an unabated and spectacular blow-off, especially given the momentum in place now. There is also the possibility that the over-bought state may be worked off with time consolidation rather than price correction.
Define your risk tolerance and set stops accordingly, a pull-back will add welcome health to this rally which is already far too long in the tooth.
By Kathryn James
The Nasdaq 100 is up 19% this year alone. This lift has no doubt been assisted by its star player Apple whose share price has risen by a stunning 46% in 2012! In analysing the chart of the Nasdaq 100 there are a few technical strategies that could have been deployed to spot the trend and grab a piece of that action.
Simple tactics using resistance breakouts of inverse head and shoulders patterns would have brought you home a cool 12.5% since the beginning of 2012. Taking a view on the longer term analysis, would have had offered a buy signal on the Nasdaq at the end of 2010 at around 2055. Its current price at the close yesterday was 2708, that’s a nice return of 31%.
First I’ll take a look at the nearer term trend over the last 9 months on the daily chart. We saw the Nasdaq build an inverse head and shoulders pattern during the choppy summer months when volatility spiked. It was wise to sit aside through this period as risk was high. A break of the neckline in January would have triggered a buy signal just below 2400 with no risk to stops being taken. The target for this inverse head and shoulders pattern is 2790. Due to the parabolic nature of the Nasdaq at the moment, I would be paring back and raising stops to protect my profits.
My second chart is a longer term view on a monthly time scale, the inverse head and shoulders is classic and the summer volatility gave a pull-back that tested support perfectly; shrewd technicians who missed the initial break would have been buying on a bounce from this level around 2060. The target for this longer term move is calculated from the low to a break of the neckline which is 3100.
The Nasdaq is currently in a fourth phase accelerated trend and is parabolic so caution on the buy side is wise at these levels, trailing stops or trimming positions would be advisable here as aggressive traders may be entertaining shorts.
