The NASDAQ 100 was at an interesting juncture last week. After a relentless 11 day rally, the tech heavy NASDAQ ran into strong resistance at the $39.2 Fibonacci confluence drawn from the recent lows back to the January highs—a typical retracement.
Since then though, the index has been reversing downward from the "neckline" of a potential Inverse Head and Shoulders pattern, perhaps building the right shoulder at time of writing.
A break above 275 on a closing basis would confirm a bullish reversal, as basic principles of technical analysis would tell us.
However, a close below 338 on the Invesco QQQ Trust (NASDAQ:QQQ) would likely do enough technical damage to invalidate the pattern and increase the likelihood of the potential for a continuation of a new down trend.
That said, the Index stopped on Friday at the 61.8% Fibonacci confluence of support and despite the recent technical damage, could also be construed as a classic retracement in a bull market.
However, the recent rotation has been into defensive sectors amidst an economy that is showing signs of contraction.
The NASDAQ 100 trends bearish in these time frames:
- Below the 200 day moving average (Bearish)
- South of the 50 MA (Bearish)
- Under the 20 MA (Bearish)
The relentless spike in bond yields caused a negative drag on tech stocks and therefore the NASDAQ 100. To repair the technical damage that's been inflicted, we needed to see a close above 275 which would increase the likelihood of a re-test of the New Year's swing high.
Should price prove to be unable to sustain 275 on a closing basis, that would increase the odds of a continuation of the downtrend with the Fibonacci support levels in the chart below likely coming into focus in the near term before the next leg higher.
The pattern emerging, however, was the index, within the confines of a new downtrend after it made new all time highs last November, has since been making a series of lower lows and lower highs.
The NASDAQ needs to hold the 13000 level to avert a more serious draw down. Over the next few weeks and months ahead, the question would be, "can the NASDAQ reverse the down trend and breakout above the confluence of Fibonacci resistance near the neckline on a closing basis?"
If not, the measured move of another H&S breakdown could see stocks pull back to the next Fibonacci and swing low confluence near 12587.
One last note: The NASDAQ composite broke a long term trend line on the weekly and has recently re-tested that broken trend line from the downside, struggling to recapture it.
The index was re-testing the recent lows set in mid-march—with 12,587 a viable target—and an increasing likelihood should the above inverse head and shoulders pattern fall apart.