My last Trader's Corner
article went into rounding top
patterns and my first chart shows how that's come out so far. AND, certain 'common' downside percent retracements suggest potential bottoms. This background piece can be viewed online at the following LINK
NASDAQ HOURLY 'ROUNDING TOP' UPDATE:
I first thought the early-April Nasdaq Composite (COMP) rally back up to the 4183, from the 4052 area, might have been a bullish upside breakout above the circular arc drawn through the various highs up UNTIL that point. However, the larger more encompassing hourly chart picture has since emerged and the breakout now looks to have came just recently when COMP pieced resistance implied by the circular arc around 4005 on 4/15/14 and advanced next to the 4100 area.
This is just one piece of the technical puzzle picture that suggests a potential bottom in Nasdaq. The other aspect is the 100% 'round-trip' retracement levels seen on the daily COMP and NDX charts further on, representing potential double bottoms.
RETRACEMENT LEVELS AS A 'GUIDE' TO POTENTIAL BOTTOMS:
Retracements of a prior decline or prior advance (this one) typically follow the pattern of give-backs of about one-half, when the index or stock in question is in a 'normally' strong advance. It's been well recognized that extreme weakness in the tech-heavy Nasdaq has been dragging down the S&P, not that the S&P itself was especially overvalued or top-heavy.
My expectations have been for an S&P 500 (SPX) LOW to be made near its 50% retracement level; or, perhaps a bit lower, on a 'successful' retest of support implied by SPX's up trendline (intersecting in the 1800 area). In fact the 50% SPX retracement area was where selling dried up significantly and buying came in.
Moreover, the recent rebound occurred from the area of an oversold extreme in terms of the Relative Strength Index or RSI.
The big cap S&P 100 (OEX) shows an EXACT 50% Fibonacci retracement of the prior advance, from intraday low to intraday peak, as highlighted on the OEX daily chart below.
It was quite significant as well to 'prove' the power of this particular retracement (50%) that OEX hit this same bottom on 3 days running or close to it in the case of the 3rd day. This cluster of lows gave TIME to assess the likelihood that a bottom had formed, making for a longer time interval than we often have to make trading decisions.
The Nasdaq Composite (COMP) and big cap Nas 100 (NDX) Indices performed as I had anticipated by virtue of the fact that EXCEEDING a 62-66% retracement often then leads to a 'round-trip' 100 percent retracement back to the prior downswing low. A move back to a prior low like this, followed by a strong rebound, is precisely how double bottoms form.
COMP did dip bit under its prior low on an intraday basis as the last 'stops' were run and last panic seller gave up, but found support just above its 200-day moving average. Hey, you want 'picture-perfect' technical/chart action, see my last chart!
Beside the EXACT Nas 100 (NDX) 100 percent retracement to the prior intraday low, followed by a good-sized rally, there's another important chart/technical aspect to point out here. That aspect is the tendency for bottoms in NDX (as is the case sometimes with the VIX S&P 500 volatility index), where certain HIGH Nas 100 Volatility Index (VXN) readings occur in tandem with price BOTTOMS. See the VXN chart under the oversold RSI reading that occurred at the recent bottom.
GOOD TRADING SUCCESS!