If the Nasdaq bulls are going to make a stand, this would be the place to do it.
The Nasdaq and Nasdaq 100 both found support Friday at a level that chartists have been watching for some time: the lower boundaries of what could be falling wedges, a bullish pattern because the converging downtrend lines mean that a decline could run out of room eventually (see first two charts below).
This is the place for tech bulls to stand up and be counted. But if those lines do break (and they would at about 1850 on the Nasdaq and 1500 on the Nasdaq 100), there is one final support left, and it’s a critical one: the Nasdaq 100’s 1990 trendline, the last trendline left from the roaring 1990s, and the support the market found at the April 4 bottom (see chart below). That line is about 2%-3% down from here, at about 1450-1475. All other trendlines from the 1990s – on the Dow, the S&P and the Nasdaq – were broken months ago.
There is one hint that those falling wedges could break down and that Nasdaq 100 trendline could be tested: Those pesky head-and-shoulders tops that all the major indexes broke down out of in mid-June. All the indexes have reached the minimum projected downside out of those patterns except for one: the Nasdaq 100, which measured to 1468 from its head-and-shoulders neckline at 1769. Given how accurate those head-and-shoulders patterns have been, the odds favor a test of that Nasdaq 100 trendline.
And there’s that troubling chart belonging to a little ol’ software company from Redmond, Washington, which broke down Friday out of a bearish broadening top and also closed below its 200-day moving average.
If it weren’t for that bear sighting on the cover of USA Today this morning, we’d say the situation was dire. Rising bearish sentiment is a plus for the bulls. Now can they hold support on the indexes?