With the US markets closed today, and with a holiday shortened trading day ahead tomorrow, many traders are now looking towards the year end, and perhaps forecasting where the major indices are likely to close, following the recent move away from risk assets, and into safe havens over the last few weeks. One of the classic indices is of course the NASDAQ 100, with tech stocks generally considered to be a leading indicator of economic growth, as the broad economy moves from recession into early expansion, with companies once again prepared to invest as demand for goods and services grows and tentative optimism returns. So, what is the E-mini NQ telling us right now. Are we likely to see the first signs of an economic recovery, or a further steep decline into a double dip recession, and for this we need to consider both the daily and the weekly charts.
Starting with the daily chart, the trend here has remained firmly bearish, with no change in the trend dot color, and with the move lower punctuated with a series of isolated pivot highs and isolated pivot lows, as the market descends in a traditional pattern, of lower highs and lower lows. Indeed on Friday last week, the most recent of these was posted as an isolated pivot low on the chart in the 2492 price area, before the market recovered this week to climb back to test the 2600 level above. However, the key point to note here is the volume on the daily chart, and whilst it is green, with buyers returning to support the move higher, the volume itself is falling, suggesting a weak market, which is rising on falling volume – never a good signal. This in itself is a warning that the move higher is running out of steam, but this has to be tempered with the ‘holiday’ effect of Thanksgiving. Nevertheless, not a good sign for any sustained move higher, and for this to be confirmed we may see an isolated pivot high posted in due course, which will then confirm this weakness. The three day chart confirms this analysis, with the trend here also firmly bearish, and with only minor buying over the last few days, the short term outlook remains weak for equities and the NASDAQ 100 index.
Moving to the weekly chart, the picture here is slightly different where we are considering the weekly, and three weekly chart. Here the weekly chart is entering an interesting phase, and should we see a close on the week above the 2600 level, then an isolated pivot low will be posted on the chart, suggesting a move higher in the longer term. Indeed, as we can see, this price area provided a solid level of price support throughout June and July as the index tested this region, before finally bouncing higher and back to the 2871 high of late August. The Heatmap has recently transitioned to bearish, and coupled with selling volumes on the weekly chart which are also mirrored on the three week chart, sentiment remains bearish. However, note the three week trend, which remains firmly bullish for the time being. The key here will be the isolated pivot low in the 2500 region. If this is posted on the weekly chart, then expect to see the market push higher over the next few weeks, possibly ending with the traditional Santa Claus rally to test resistance in the 2750 area and beyond, as markets end 2012 on a high.
By Anna Coulling