Two weeks ago, I showed how the NASDAQ 100 was forming a potential bullish wedge. And I concluded:
"The pattern is possible: it has not been confirmed yet. There is a condition on the chart but no trigger yet. The trigger will be a breakout, which holds, that then, technically, can target once again as high as ~15,000…. [Because] as shown … another stab lower to around $10,500+/-500 cannot be excluded just yet.”
See Figure 1 below.
Figure 1. NASDAQ100 daily candlestick chart with detailed EWP count and technical indicators
Fast forward, the index broke out last week and rallied for two more days. So far, so good. However, the index retested the breakout this week by finding support at the upper black dotted trendline. However, the NDX did drop below the breakout level, giving the bulls a first warning it may not last. Hence, why I wrote two weeks ago, “A breakout, which holds…” because there are no guarantees in the markets, only proper position sizing and stops. So far, it is holding, but the bulls are literarily hanging in there by the skin of their teeth.
A break below this week’s low and subsequently below the late-June low of around $11,300 will shift focus again on that $10,500+/-500 level. However, a breakout above the late June and early July bounce high levels of about $12,300 will target $12,900. A breakout above the latter level, and the NDX can target $15,000. Because the index has been trading below $12,300 but above $11,300 for a month now, it is stuck between a rock and a hard place (see here). The bulls and bears are slugging it out.
Meanwhile, the possible bullish wedge pattern was triggered. Now, we need to see the required follow-through above $12,300.
More upside is supported with the technical indicators all pointing up – on a buy (green dotted arrows). But the index’s price is the final arbiter. Please note it is below the declining 50-day and 200-day Simple Moving Averages (blue and red lines, respectively). Thus, it is in a strong downtrend. As such, and as said, proper position sizing and stop levels for any long position must be applied at all times. This market is not yet in an environment where one mortgages the house and throws everything but the kitchen sink. Quite the contrary, this is an environment where one may dip a toe or two in the water and be ready to withdraw as soon as the water starts to feel a bit cold.