The Nasdaq 100 proved my bias for a pullback wrong Wednesday. The index blew past 1720 and tested resistance at 1735. The old bulls in this trend have forced money to come off the sideline and chase performance. The risk the new bulls run now is buying a faded breakout.
Given that my analysis failed and my resistance targets were reached without getting the lower entry point I expected, the best thing for me is to lay back in my chair, put my hands on my head and observe the last two sessions of the week. My daily chart bias for a break higher has been confirmed. After 1735, the next step for the bulls is to attack the resistance level of 1760, which was last seen in January.
As you well know, I prefer to see bases and congestion before moves like this. I don't want to see all the bulls' energy expended in reaching resistance, lowering the probability for continuation past it. I'm ecstatic that we've moved higher, but it's all about staying power in the longer term. I'm willing to eat a little pain in the near term to have a healthy trend higher. Otherwise, we get times like January to February where the index pulls back 120 points before finding footing again. This hurts a lot of new bulls and creates ugly periods of long congestion, like what we saw from February to last week.
For the next two days, I'm observation-minded for two reasons. The first and most important is my wedding on Saturday -- I'll be off to Italy for the next two weeks. Second is that my read for the last two days has been off.
I'll use the 1720-1735 range as a guideline Thursday. Given that the market has expended a ton of energy, I expect resistance at 1735 to create a bit of a problem for the bulls in the early going. Should the bulls be able to push over 1735 with volume behind them, I'm assuming new distribution pressure will let the bulls have it and get more aggressive at 1760. Should distribution pressure either from new short exposure or profit-taking move the index back under 1720, I expect the afternoon session on Thursday and most of Friday will see congestion around 1715-1720.
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;
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