The Nasdaq 100 saw a reversal Friday with a series of higher highs, leaving the 1670-1710 range relatively intact for now. It was interesting Thursday and Friday to see how the formation of a head and shoulders pattern led to a downtrend that was quickly bid into by the bulls. I say this because there never seemed to be much panic in volume even as the index quickly fell from 1700 to under 1680. This makes me believe the move was more of a computer generated sell-off than traders adding and subtracting positions.
I expect the 1690 level to be a magnet for price action in a range of 1670-1710. As the index moves away from this level toward 1670 or 1710, it won't get too far without revisiting 1690. This should allow for some solid range trading through Wednesday.
The 1690 level has acted as a pivot a few times in the last few weeks for reasons that I can't figure out. Going back to as late as the year 2000, I don't see any price action around this level that would suggest that it has historical importance.
The bulls/bears scenario hasn't changed from late last week. The head and shoulders formation that I wanted to see didn't set up as I wanted. I wasn't looking for a break of 1690 Thursday. I expected more basing action above 1690 for a few days to form the right part of the shoulder. This would have aided the bears more once 1690 broke because it would have allowed distribution pressure to become stronger and more confident if any attempts at testing highs failed. Instead, there was a vacuum to the downside that was quickly bought by the bulls and created the reversal that we saw Friday.
However, the bears and the bulls are equally matched right now. The bulls own the longer-term technical picture. They also own 1670 as a support level. The bears have not tested either in a meaningful way. The bears own the failure above 1710 and until Friday owned the intraday bias with the series of lower highs and lower lows into 1670. Triple-witching shenanigans on Wednesday and Thursday could invalidate my range, but I wouldn't expect a continuation out of a break of either side.
On Monday, I expect 1670-1710 to hold as the range. I also expect that no matter the price action in the next few days, 1690 will act as a tractor beam that pulls the index back to that level.
P.S. Will you be there when Cramer makes his next move?
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Chris Schumacher False Positives on the Nasdaq 100 12/7/2005 9:52 AM EST Bears are starting to perk up, but don't bet the farm that we've seen a top.
Market Commentary Bears May Grab NDX by Head and Shoulder 12/8/2005 9:30 AM EST We've got a left shoulder and a head -- if the index drops through 1690, the bearish pattern could be completed.
Market Commentary Bearish Intraday, Bullish Long Term 12/9/2005 9:44 AM EST Until 1635 breaks, the bulls still have a technical advantage on the Nasdaq 100.
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.
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