NDX Traders Keep Eye on the Clock

Aside from a small break of 1700 at the open on Wednesday, price on the Nasdaq-100 (NDX) remained in the current range between 1700 and 1720.

The time frame analysis is key here. The intraday time frame rests with the bulls as they buy dips and try to create a base near highs. The daily chart though shows the danger of a head-shoulders chart formation that has the bears salivating over the prospect of a sustained breakdown.

The key here is deciding which boat traders want to ride.

Should the intraday time frame that the bulls control create a break and close above 1720, then the move into 1734 is a higher probability.

However, should the bears create stronger distribution pressure by not allowing a break and close above 1720, the chances increase that the base that is forming now would turn into the right side of the shoulder of the head-shoulders pattern that is seen on the Daily chart. This would create a breakdown to former support at 1670 and quite possibly 1635.

As I mentioned in Wednesday's column, the only way to profit at this point is to enter nearer the extremes of the range with a stop on the other side of the range levels. This reduces capital risk and increases profit potential should a trade be on the right side of the market. If wrong, with a reduced capital risk, it alleviates anxiety for being wrong assuming the risk parameters are not outside of risk tolerance.

There is one formation that has been playing out on the intraday time frame that the bulls will need to rectify if there is a chance to break and close above 1720. That specific need is for the bulls to get over the downtrend line that is forming in the base, running from 1720 to about 1717 to 1712, this creates the downtrend line that you can see in blue on the chart below. A series of lower highs and lower lows is not what is needed by the bulls to try and sustain a move higher.

Instead, it needs to be a series of higher lows and higher highs within the range that says bulls are buying dips at higher supports. Given that I was looking for Wednesday to create a break lower, I want to see if this downtrend line that formed over the past three trading session holds once again on Thursday. If it does, then there should be a gap fill at 1690, with a possible move to 1670 before Monday of next week. A close above NDX 1720 would negate this scenario.

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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.