Featured Trade - Nasdaq 100 is coming close to major risk level with exhaustion signs

A potential major cyclical top looms for Nasdaq 100

Short-term technical outlook on US Tech 100 (Thurs, 26 Jul)

Key technical elements

  • The US Tech 100 Index (proxy for the Nasdaq 100 futures) had continued its relentless push up to print a fresh new all-time high level of 7513 in yesterday, 25 Jul U.S. session which is just 0.6% sway from the key major resistance level of 7560 (the upper boundary of the primary ascending channel from Jun 2016 low, the upper boundary of the medium-term ascending channel from 04 Apr 2018 low & a Fibonacci projection cluster).
  • The daily RSI oscillator has started to flash a bearish divergence signal near its overbought region which indicates that the medium-term upside momentum of price action has started to wane.
  • Based on Elliot Wave/fractal analysis, the Index may have completed the primary degree impulsive wave 5/ of a higher cycle degree wave structure wave V to end the 9-year uptrend in place since Mar 2009 low where a potential significant correction (greater in magnitude of the recent Jan/Feb 2018 decline of 12%).
  • The top five components stocks of the Nasdaq 100 are Apple (11%), Amazon (10%), Microsoft (9.6%), Facebook (6%), Alphabet/Google (5%) which are the “FANG” momentum styled theme plays that are the current market leaders. The price action of Facebook in the yesterday, 27 Jul after-hours trading where it tumbled by 24% to wipe out $151 billion on its market capitalisation (the largest single day fall for a stock in U.S. stock market history) that has caused a dent in such highly popular/overcrowded “FANG” based momentum style theme plays that can create a negative feedback loop into other technology stocks. The latest earnings results from Facebook has shown a slowdown in revenue and user growth for Q2 with a weaker guidance for the rest of 2018. Today, 26 Jul will see the earnings results release of another heavy weight, Amazon after the closure of the U.S. cash stock trading session.
  • The intermediate resistance stands at 7451 which is defined by the minor gap and close to the 61.8% Fibonacci retracement of yesterday’s decline from 7517 high to today, 26 Jul Asian session low of 7376. The shorter-term hourly Stochastic oscillator has started to turn up from its oversold region which suggests a potential push up retest the 7451 intermediate resistance.

Key Levels (1 to 3 days)

Intermediate resistance: 7451

Pivot (key resistance): 7560

Supports: 7375, 7300/270 & 7150/100

Next resistance: 7710/40


Therefore as long as the 7560 major key pivotal resistance is not surpassed, the Index may start to shape a bearish reversal and a break below 7375 is likely to reinforce a potential decline to target the next intermediate support at 7300/270 in the first step (the minor swing low of 17 Jul 2018, the minor ascending trendline from 28 Jun 2018 & the 38.2% Fibonacci retracement of the on-going up move from 28 Jun 2018 low to 25 Jul 2018 high of 7517).

However, a clearance above 7560 invalidates the bearish scenario for a continuation of the up move to target the next resistance at 7710/40 (Fibonacci projection cluster).

Charts are from City Index Advantage TraderPro

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