Price action in the Nasdaq 100 in the past week was disappointing over the last two days, with respect to failing to break the resistance at 1823 and pulling back aggressively again on Thursday. Most of the chatter around the broader markets was related to the lower GDP figures, the reaction to news out of stocks like Oracle
(ORCL)
and analyst comments about banks going lower again in the near term. There are two things that I need to see in order to get happier about a possible uptrend.
The first aspect is that I need the markets to continue buying bad news. This began last week when the markets moved higher off of the Bear Stearns
(BSC)
issues. There were two 300-plus swings to the high side last week on the heels of that. Sentiment shifted through Tuesday of this week to the positive, and it appears that futures this morning are higher again as well.
The second aspect I need to see is the willingness for buyers to buy not on dips, but on strength in combination with accumulation when there is no news. This latter issue of buying strength vs. weakness is what will help heal the technical damage in an index that is down nearly 14% for the year.
A technical pattern could be the precursor to such a shift in demand for tech equities. The reverse head-and-shoulders pattern could be forming here under NDX 1823, and this is typically a bullish pattern. A failure of this pattern, however, would spell more irritation for an uptrend possibility. A failure would instead lead to more congestion between the 1740 and 1825 range over the next quarter.
I still believe this market reverses when everyone is bored to death and could care less what the index does, rather than from a capitulation phase. A congestive second quarter could easily do that.
If the reverse head-and-shoulders offers the break to the next higher resistance at 1864, price action over the next week or so should remain congestive above 1760 to build up the support at the resistance of 1823. This would help propel price action higher on the break of 1823 on a closing basis and push the index back to 1864 resistance.
Many are talking of end-of-quarter window dressing over the next two days, and if this market mantra holds true, it will not create the same kind of support in the market that I'm looking for in the index. I want price behavior that is dependent on the above scenarios where buyers are accumulating strength, and they are buying in the absence of positive news.
For the Friday session, I'll be using NDX 1770 to 1810 as a half-hour range. Futures are higher this morning, so the index should open the day closer to the resistance of this range. I would expect some market open half-hour profit-taking to push the index back into the high 1790s that can then return the index to the open resistance.
From there, if market dynamics of window-dressing appear, it would be a wise choice to use that intraday strength to pare out of gains built up since earlier in the week or by intraday long exposure, as I don't believe the market has the ability to move too far too fast for the Friday session. A close above NDX 1825 will negate that bias.
At the time of publication, Schumacher had no positions in the stocks mentioned, although holdings can change at any time.
Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.
