With certain technology stocks on a relentless tear since the June reaction low in the broader indices, I wanted to take a closer look at the Nasdaq Composite Index for perspective. What I found, to no great surprise, is an index trading at a critical level (resistance) through the long-term lens, and a medium-term slope that most likely is not sustainable at this angle.
To visually present this better, I drew a chart of the Nasdaq Composite Index looking back to the year 2000, which is where the index hit an all-time high closer to the 5’150 area…still much higher than where the index currently trades.
After bottoming in the autumn of 2002, the index rallied sharply higher only to hit a wall in late 2010 with the onset of the latest financial crisis. Despite a visually painful drop along with the rest of the market in 2008 the index managed to bottom in early 2009 at a relative higher low versus the 2002 lows. This, from a long-term bottom building perspective is in my opinion imperative to note.
The ensuing rally off the 2009 higher low this week has roughly hit the 61.80% Fibonacci retracement level of the entire sell-off from the 2000 highs down to the 2002 lows. In other words, it took a little over thirteen years for the index to make good the cataclysmic decline from the top in the year 2000.
Closer up, on the daily chart of the Nasdaq Composite Index note that even during the May – June pullback, the index kept true to its November 2012 simple up-trend line. Since the June lows the index has now rallied almost 8% in a matter of thirteen days, which however seems a tad lofty.
This week’s breakout of the index past its May 22 highs looks good on the daily charts, but this is where the longer-term picture and hence the multi time-frame analysis comes in handy. Understanding that the Nasdaq Composite Index is now at or very close to an important resistance area on the long-term chart, coupled with a very steep rally over the past two weeks, is to understand that odds on the long-side are deteriorating by the hour.
