Beware the Descending Triangle of NDX

The bears slowly regained control of the intraday timeframe Wednesday by keeping a series of lower lows and lower highs intact through the day. While the bears have slowly taken some of the intraday control away from the bulls, the bulls are still doing a pretty good job of holding the 1680 level and created a close at least above 1685. This has put the index back near the 1690 magnet level for a second straight day.

If the bulls are to regain firm control of the intraday time frame, they will need to bust the resistance of this descending triangle. So if the bulls have anything left in the near-term, it will be time for them to step in and exhaust firepower to try to regain at least the 1700 level. Otherwise, my expectation for a return to 1760 and break will be invalidated. In addition, the bears will have new control of the index with supports well below, at 1670 and 1630-35 again.

Thursday should be a crucial day for both sides of the market.

The bears have taken it on the chin quite a few times in the last few weeks as the index has powered to new highs and scared a few of the short-side traders. They seem to have weathered most of the storm only to capitalize a bit on some of the latest market gyrations that happened from external sources, such as Bernanke. They are pretty close to breaking a key support in the market and if they succeed on Thursday, they will have confirmed regaining control of the intraday time frame.

On the other side of the market are the bulls, who have tried and tried to sustain a move higher after negating the head-and-shoulders formation through the first quarter of the year. They have been able to break key levels of resistance, but have not been able to maintain new highs. Instead, their vertical price moves higher are exhausted and do not have staying power. With an absence of higher support, the index succumbs to problems like traders saw on Monday, where no support is present to bid into an overreaction in the market.

Should the bulls prove to hold 1680 on Thursday and create the move back over 1700, they should stay in control through early next week. If the bears show up and close the index under 1680, then they will have confirmed control of the intraday time frame of the index and 1670 is the next most likely support target. Again, a close under 1680 at this point will negate the bias for a move over 1760 first.

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Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. He has delivered seminars throughout the U.S. and is a featured speaker at trading expos. At the time of publication, Schumacher had no position in any securities mentioned in this column, although holdings can change at any time. He is a graduate of Ohio State University and has served as a guest lecturer at Ohio State University's Fisher College of Business as well as the Center for Entrepreneurship. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.