The famous index of technology and IT stocks has just closed at 1,500 points on the US overnight session. It’s 5.5% lower than the recent high posted on March 26 at 1,587 points. This level of 1,587 points has been the peak of the recent rally that started at 1,265 points, on March 9.
The price action actually rebounded there at it was a previous low, posted twice in February and March 2003. The area between 1,250 and 1,265 points is therefore the main support zone on the medium -term: some strong buying interest stands there, looking for a technical opportunity to jump back into volatile IT stocks.
Let’s have a look at the price action with different timing perspectives. First, the long-term perspective is bearish. The long-term weekly chart shows that a key level has been cleared in November last year…
The oblique support line, that was indeed backing the global positive trend in place for the last 20 years, has been broken. And it may become the new long-term resistance now. Point A on the chart is the real starting point of the rally on the Nasdaq, in October 1990. Point B is the low posted in October 2002 after the index soared then crashed massively in a few years. Point C is the time when the price broke the support line and fell lower.
On the daily chart, we see that the price action quickly tested this oblique resistance (previous support) in December (point A) and quickly jumped above (false break) in early January (point B)…
Another test occurred in February (point C). The rally that just ended at 1,587 points may then be also considered as another failed attempt to cross above this resistance line. The key resistance level is currently around 1,610 points.
The different momentum indicators were of course well oriented until the end of last week. However they were already reaching high levels, suggesting that a reversal could happen soon. Because the Nasdaq just closed a few hours ago we don’t have on the chart attached the updated data for this last session. But the fall by 3.1% overnight has impacted the indicators. The MACD, the technical Momentum and the CCI have now peaked and curved downward.
A correction of the recent rally is therefore expected. A retracement towards 1,425 points (50% of the recent bullish move) is probable in a first time.
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