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Nasdaq 100 Facing Key Challenge For Stock Rally
The ability of the Nasdaq 100 to overcome nearby resistance would be one of the first price-based signs that the current stock rally may be more than just a mean-reversion bounce.
As swell as the stock market rally off of the late September low has been, it has lacked one crucial element thus far. None of the major averages, or even major sectors, have gone anywhere significant. Oh sure, many of them have bounced some 8%-10%, and that’s not chopped liver. However, none of the averages have surpassed any significant price levels beyond those representing a run-of-the-mill mean-reversion bounce. If the post-September bounce is to transition into something more meaningful on an intermediate-term basis, some of the major averages need to start breaking above levels of more consequence. One of the first indices with the opportunity to overcome such a challenge is the Nasdaq 100 (NDX).
The NDX has shown relative strength for most of the year. Thus, it wasn’t surprising to see the index hold well above its August low when the broader market retested the lows at the end of September. On September 17, the day of the Fed meeting and huge reversal that eventually led to the retest, the NDX was halted near a confluence of several key resistance points around the 4400 level. That level remains a key obstacle for the index, and perhaps a beacon of hope for the broader market should the NDX succeed in overtaking it. The index made its first foray above that line today since the September 17 Fed day.
So what is so important about the 4400 level? Well, in our view, perhaps the most important charting analytic in that vicinity is the 61.8% Fibonacci Retracement of the decline from July to August. Markets tend to move in these consistent “Fibonacci” increments, as do many things in nature and other walks of life. The most important of the increments is the 61.8% retracement. If a market’s counter-move is only able to retrace 61.8% of a move, it is likely to be just a mean-reversion or dead-cat bounce.
A couple examples of this can be seen in just the past few months on the NDX chart. E.g., the “Fed day” bounce stopped right in this same vicinity, around the 61.8% Fibonacci Retracement of the July-August decline. Subsequently, the drop into the “retest” low in late September stopped right at the 61.8% retracement of the late August to mid-September bounce.
If the counter-move can go beyond the 61.8% retracement, it stands a much better chance of turning into a more substantial move, even moving beyond a 100% retracement. In this case, that would signify a new 52-week high in the NDX, above the July highs.
Now, based on the intraday low on August 24, the 61.8% Fibonacci Retracement of the July-August decline stands around 4350. The NDX closed comfortably above there today – and in mid-September, actually. Based on the exaggerated mini-crash prices on August 24, however, it is reasonable to assume the 61.8% line is much closer to the 4400 level. That is a subjective statement…but one based on much experience.
Also in the vicinity of the 4400 level is…4400 itself. This line has served as a pivot line since about April of this year. It held as support on multiple days in May, June and July. It then served as resistance in mid-September and again over the past week. Therefore, the line can reasonably be assumed to be support for prices above and resistance when prices are below it.
Additionally, the 200-day moving average sits at just under 4400. After holding above that line essentially since early 2013, the Nasdaq 100 finally fell below it during the August selloff. Again, on the Fed day, the NDX rallied above the 200-day intraday, but could not hold it at the close. Today, it was finally able to overtake it again, albeit slightly. Also, perhaps importantly, is the fact that the 200-day moving average has not yet turned downward. As bad as the recent selloff was, the 200-day has continued to move laterally, suggestive of sideways action rather than a trend lower.
Lastly, the index was able to recover the 50-day moving average in the past few days, which also lies in this vicinity. The 50-day also repelled the NDX on that September 17 Fed day. It has since fallen below the 200-day moving average, forming the vaunted “death cross”. But we’re not worried about that as long as prices can remain above those moving averages.
Today, the Nasdaq 100 closed at 4418, above the 4400 level, so it is a good start in meeting this challenge. Obviously, the next goal of the challenge is staying above that level. If it can, then the index can move convincingly above it. And if that is the case, there should also be more upside in the coming months for the broad market in general. For if one major index is able to break crucial resistance and prove it is involved in more than a simple mean-reversion bounce, it is a sign that there is legitimate demand still for stocks.
Thus far, no major indices or sectors have been able to move beyond “mean-reversion” status. If the NDX is able to win its challenge here at ~4400, it will bode well for it and for the continuation of the broader equity market rally.
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Technical analysis is so outdated compared to central bank liquidity pumps and HFT.
I'm practically giddy with excitement.
The only thing more useless than technical analysis these days is fundamental analysis.
Generally true. Which is why I spend a lot less time fiddling with and poring over charts than I used to.
Just to corrct the author on one point though. A 61.8% retracement is not a dead cat bounce. A dead cat bounce would at most be up to 38.2% if you are into the Fibs. 61.8 is nearly two thirds of the original move. Dead cats do not bounce that high when dropped from elevated places.
From Paul Craig Roberts-
“in America today there are no free financial markets. The markets are rigged by the Federal Reserve’s Quantitative Easing, by gold price manipulation, by the Treasury’s Plunge Protection Team and Exchange Stabilization Fund, and by the big private banks.
Allegedly, QE is over, but it is not. The Fed intends to roll over the interest and principle from its bloated $4.5 trillion bond portfolio into purchases of more bonds, and the banks intend to fill in the gaps by using the $2.6 trillion in their cash on deposit with the Fed to purchase bonds. QE has morphed, not ended. The money the Fed paid the banks for bonds will now be used by the banks to support the bond price by purchasing bonds.
Normally when massive amounts of debt and money are created the currency collapses, but the dollar has been strengthening. The dollar gains strength from the
rigging of the gold price in the futures market. The Federal Reserve’s agents, the bullion banks, print paper futures contracts representing many tonnes of gold and dump them them into the market during periods of light or nonexistent trading. This drives down the gold price despite rising demand for the physical metal. This manipulation is done in order to counteract the effect of the expansion of money and debt on the dollar’s exchange value. A declining dollar price of gold makes the dollar look strong.
The dollar also gains the appearance of strength from debt monetization by the Bank of Japan and the European Central Bank. The Bank of Japan’s Quantitative Easing program is even larger than the Fed’s. Even Switzerland is rigging the price of the Swiss franc. Since all currencies are inflating, the dollar does not decline in exchange value.
As Japan is Washington’s vassal, it is conceivable that some of the money being printed by the Bank of Japan will be used to purchase US Treasuries, thus taking the place along with purchases by the large US banks of the Fed’s QE.
The large private US and UK banks are also manipulating markets hand over fist. Remember the scandal over the banks fixing the LIBOR rate (the London Interbank Borrowing Rate) and the opening gold price on the London exchange. Now the banks have been caught rigging currency markets with algorithms developed to manipulate foreign exchange markets.”
Link: www.paulcraigroberts.org/2014/12/17/financial-market-manipulation-new-tr...
Here's to a man that understood it all and can even explain it to all of us. THANK YOU PCR!
And just think, he could be the next super computer, if it just were not for that pain in the neck from that over thinking.
Central banks know what the technicals are. One additional job of the Fed Res bank is "price stability". The way to create price stability is to destroy technical analysis.
Note alos another "strangeness".
Sopt phys is off $2 from the NY close yesterday. Futures off $8. Nice fiddiediddleing with the term structure, a flattening of the contango into Backwardation!
So looks like some modest attempt for a beat down but cash remains resilient. (As expected hereabouts)
In other news, the BBG entire desk this morning was railing badly on the negatives of Mr Trump. That he's insulting (Nobody else including Vicki "Fuck the EU" Nuland) has no policies ("They'll be out of here within 2 years") etc etc etc. The Establishment is running against him, full tilt bogey and trying to discredit him mightily via lies and perceptions management.
Thank you ever so much impartial press, guardian of freedoms and truth and whatever the fuck lies you tell. Assholes.
I'll be against Trump when CNN is for him.
Ever hear of reverse psychology? Could it be that CNN will be against him so that people will be FOR him?!?!?! TPTB are masters at making you want what they want you to want.
Technicals? Seriously?
Trading profits tend to derive from the main trend minus transaction costs. Given the stock market is chopping sideways, it is likely to be chopping up traders. So much fraud, so little time left to gamble in the markets before they crash and burn. Not fun...sort of like a death watch.
William Dudley, NY Fed, and his bankster buddies control the overnight futures.
Mysterious magic that occurs when the market looks like it's going to take a crap.
The Central banks will use whatever printed money they need to prop up the markets, unlike before.
It's been rigged. No more free markets. They won't let the major players take a hit for bad bets. Instead they punish the savers and say it's for the good of everyone else. That everyone else is the large banks and Market makers.
Then where is my low gold price. Where is it.
Short doom-chubbies.