The storm clouds are gathering over the NQ E-mini on the daily chart which is now adopting a distinctly bearish tone as markets return to full participation following the extended holiday period. While in general terms, the index has been moving sideways in a relatively wide range throughout December, last week’s price action and the open Monday morning were hinting at a possible deeper move.
First, we now have a well-defined ceiling of resistance overhead at 16,600 where the truncated Santa Claus rally came to an abrupt halt. In addition, we now also have a strong level of price-based resistance denoted by the blue dashed line of the accumulation and distribution indicator at 16,400.
This was duly breached as a platform of support last week with volume rising as the selling pressure intensified and in early trading, as the week begins, the NQ E-mini is currently trading at 15,525 at the time of writing.
Below are two key levels which are likely to determine whether we see a bounce. But if these too are breached, this will open the way to a much deeper move and potentially all the way back to 14,400 in the medium term.
The two key levels of support are denoted by the dashed lines in the chart above, one in red at 15,400, the other in blue just below. Both are significant as the accumulation and distribution indicator for NinjaTrader displays these according to their strength, so the thicker the line the greater the number of times they have been tested.
Moreover, where we have two such lines acting together, this reinforces their strength. So from a technical perspective, the 15,400 area is now crucial. If these levels act as a platform, the index may find support and bounce back, but if they are breached with sustained selling, watch out below!
Volume on the VPOC here is relatively weak and unlikely to offer anything in the way of a cushion should the price levels above be breached. So not a rosy picture for the NQ E-mini at present, one which is mirrored by the ES E-mini, but less so on the YM E-mini which continues to maintain a more bullish tone; but the NQ E-mini has the potential to drag both with it.
Since writing the above, the index has fallen to the support levels mentioned , so a lively and interesting start to the new trading week, one which is dominated by inflation data and the start of earnings season.