Featured Trade: Nasdaq 100 is coming close to potential bearish inflection level

Impending potential bearish reversal on Nasdaq 100

Short-term technical outlook on US Tech 100 (Thurs, 13 Dec)



Key technical elements

  • Since the start of this week, the US Tech 100 Index (proxy for the Nasdaq 100 futures) had rallied by 5.1% to print a recent high of 6533 on 12 Dec from its 10 Dec 2018 low of 6533, making it the best performing U.S. benchmark stock index ahead of S&P 500 (+ 3.9%) and Russell 2000 (+ 3.4%) due to its “higher beta/growth driven component stocks.
  • However, the on-going rally from its 10 Dec low of 6533 seems to be more corrective (dead cat bounce) in nature as it has evolved into a minor bearish “Ascending Wedge” range configuration where the magnitude of the “higher highs” are lesser than the magnitude of the “higher lows” (see 1 hour chart).
  • Elliot Wave/fractal analysis also advocates a potential corrective rebound in the making since 10 Dec low where the final push up of the minor corrective wave 2/ has a potential bearish inflection/reversal zone at 6900/6920 (61.8% retracement of the recent decline from 03 Dec high to 10 Dec 2018 low & 1.00 extension of the up move from 10 Dec low to 11 Dec high projected from 12 Dec minor low) which confluences with a graphical former minor range resistance from 14 Nov/19 Nov 2018.
  • The downside trigger level to validate the potential bearish reversal rests at 6777 which is the lower limit/support of the minor “Ascending Wedge” (see 1 hour chart).
  • The daily RSI oscillator remains below a significant corresponding resistance at the 50 level coupled with an extreme overbought reading seen in the shorter-term 1-hour Stochastic oscillator. These observations suggest that the upside momentum of the on-going rebound from 10 Dec 2018 low is “overstretched” where the risk of a minor bearish reversal in price action increases at this juncture.

Key Levels (1 to 3 days)

Intermediate resistance: 6868

Pivot (key resistance): 6920

Supports: 6777 (trigger), 6550 & 6495/440

Next resistance: 7040/7134

Conclusion

The Index is now approaching an inflection zone where a potential minor bearish reversal can materialise. If the 6920 key short-term pivotal resistance is not surpassed and an hourly close below 6777, the Index is likely to shape an impulsive downleg to target the minor supports of 6550 and 6495/440 next (the swing low areas of 20/23 Nov 2018 & 25 Apr 2018).

On the other hand, a break above 6920 put the preferred bearish tone on hold for an extension of the corrective rebound towards the medium-term resistance of 7040/7134 (the swing high of 03 Dec 2018 & the upper boundary of the descending channel from 17 Oct 2018 high).

Charts are from City Index Advantage TraderPro



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