By Andrew Nyquist
Over a week and a half ago, I honed in on the Nasdaq 100 and the importance of lateral support around 2775-2800. At the time the index had bounced off support, offering bulls a glimmer of hope. However, the risk line (support) didn’t end up holding, and the index broke lower… like a waterfall.
This is an example of why good traders identify support and set risk levels (stops) on their investments.
Looking at the current chart patterning below, two possible support patterns/scenarios come to mind. First, if this is a measured move, then support 1 will hold and the index will start to bounce immediately. Second, if this is a classic head and shoulders breakdown, then the index will drop a bit further (likely to support 2).
The index is currently oversold, but remember, oversold can hang around a bit longer than investors expect. A good way to get around this is to average in to positions. Note that the RSI is nearing 30 -readings at or below 30 tend to be good indications that a bottom is nearing.
Trade safe, trade disciplined.
More charts found here.
Nasdaq 100 (NDX) technical chart as of October 12, 2012. Nasdaq 100 chart with rising wedge and head and shoulders pattern. Nasdaq 100 October technical analysis.
No position in any of the securities mentioned at the time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.