Featured Trade: Nasdaq 100 is coming close to potential bearish inflection level

Impending potential bearish reversal on Nasdaq 100

Short-term technical outlook on US Tech 100 (Thurs, 13 Dec)



Key technical elements

  • Since the start of this week, the US Tech 100 Index (proxy for the Nasdaq 100 futures) had rallied by 5.1% to print a recent high of 6533 on 12 Dec from its 10 Dec 2018 low of 6533, making it the best performing U.S. benchmark stock index ahead of S&P 500 (+ 3.9%) and Russell 2000 (+ 3.4%) due to its “higher beta/growth driven component stocks.
  • However, the on-going rally from its 10 Dec low of 6533 seems to be more corrective (dead cat bounce) in nature as it has evolved into a minor bearish “Ascending Wedge” range configuration where the magnitude of the “higher highs” are lesser than the magnitude of the “higher lows” (see 1 hour chart).
  • Elliot Wave/fractal analysis also advocates a potential corrective rebound in the making since 10 Dec low where the final push up of the minor corrective wave 2/ has a potential bearish inflection/reversal zone at 6900/6920 (61.8% retracement of the recent decline from 03 Dec high to 10 Dec 2018 low & 1.00 extension of the up move from 10 Dec low to 11 Dec high projected from 12 Dec minor low) which confluences with a graphical former minor range resistance from 14 Nov/19 Nov 2018.
  • The downside trigger level to validate the potential bearish reversal rests at 6777 which is the lower limit/support of the minor “Ascending Wedge” (see 1 hour chart).
  • The daily RSI oscillator remains below a significant corresponding resistance at the 50 level coupled with an extreme overbought reading seen in the shorter-term 1-hour Stochastic oscillator. These observations suggest that the upside momentum of the on-going rebound from 10 Dec 2018 low is “overstretched” where the risk of a minor bearish reversal in price action increases at this juncture.

Key Levels (1 to 3 days)

Intermediate resistance: 6868

Pivot (key resistance): 6920

Supports: 6777 (trigger), 6550 & 6495/440

Next resistance: 7040/7134

Conclusion

The Index is now approaching an inflection zone where a potential minor bearish reversal can materialise. If the 6920 key short-term pivotal resistance is not surpassed and an hourly close below 6777, the Index is likely to shape an impulsive downleg to target the minor supports of 6550 and 6495/440 next (the swing low areas of 20/23 Nov 2018 & 25 Apr 2018).

On the other hand, a break above 6920 put the preferred bearish tone on hold for an extension of the corrective rebound towards the medium-term resistance of 7040/7134 (the swing high of 03 Dec 2018 & the upper boundary of the descending channel from 17 Oct 2018 high).

Charts are from City Index Advantage TraderPro



Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.