Nasdaq 100: sharp move imminent, but in which direction?

The Nasdaq 100 has been repeatedly hitting resistance around the July high of 4693, although it did manage to climb above here for a few days at the start of November. However, that breakout lacked conviction and the bulls were unable to hold their nerves for too long. As a result, it fell back all the way near resistance-turned-support around 4455 by mid-November. Here, the tech-heavy index found support, leading to another rally towards 4693 again. But as can be seen on the daily chart, a breakout is still elusive for the bulls.

In addition to the previous high, the abovementioned 4693 resistance also converges the extended point D of an ABCD formation and the 161.8% Fibonacci extension of the last notable drop from point B to C. In other words, 4693 marks the entry point of a Gartley Double Top pattern. So far this pattern hasn’t become invalidated and we have already seen a sizeable pullback at the start of the month. So it is still possible the index may find a more significant top here, especially since the bullish momentum is once again falling – as highlighted for example by the slow stochastics indicator.

That being said, no major support has broken down yet, with short-term support at 4620 and the bullish trend line slightly lower also holding. Should these levels break down then the selling pressure may increase and the downward move accelerate. Indeed, the doji candle on weekly chart (in the inset) also points to indecisiveness at these extremes. As such, one group of market participants – either the bulls or the bears – will soon be proven wrong, which could potentially lead to a sharp move in the direction of the break.

Still, for as long as the key support at 4450/55 area holds, the medium-term bullish trend would remain intact. Supporting the bullish case is the fact that the 50-day average has crossed above the 200 to create a “golden crossover.” What’s more, the rejections at 4693 have led to progressively smaller pullbacks, suggesting the Nasdaq 100 is gearing up for a potential breakout soon.

The bulls will now want to first and foremost see a closing break above 4693. Once achieved, they may then aim for the Fibonacci extension levels as their next targets, starting with the 127.2% extension of the DE move at 4812. The 161.8% extension of this price swing converges with the 127.2% of the XA swing at 4908/9, making it a more significant resistance area.

In short, either a break higher or lower looks imminent. Conservative traders may wish to wait for the index to make up its mind before jumping on the bandwagon.