Nasdaq Composite At Critical Long-Term Level

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.

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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.

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