NASDAQ 100 Index Chart – Middle Trading Channel

I charted the NASDAQ 100 Index ($NDX) after the markets closed on September 25, 2009 when NDX was closed at 1,694.15.

The chart shows the NASDAQ 100 has come off of its highs, but is still solidly in the middle of its trading channel of the past seven months.  For now, this looks like a healthy dip.  The top trend line doesn’t look like it’s going to break any time soon.  That line shows the trend line of higher highs for more than seven months.  It’s fairly steep, so breaking above it would be a huge effort for the NDX and one that could cause me to question the staying power of rally from there.

The shortest trend line I drew shows potential support for the NDX using the line that touches the highs of July and August.  That line of previous resistance could become support.  We’ll know if it worked within days, if not the first few hours of Monday since NDX finished last week on the line.

The lines that look most interesting to me are the trend lines of higher lows.  I drew two of them with different starting points and with one ignoring a few days of the dip of July.  What’s interesting to me is that they are converging at about the same time NDX is heading down for a visit with its old friends.  At some point all trend lines break or lose significance.  Having both of these lines together now probably means this isn’t that time.  I expect support to hold.  That support is less than 4% away from Friday’s closing point.

The 10 day moving average broke last week which could indicate a few more days of downward pressure, but the 20 day moving average is only a few points below Friday’s close.  The 20 day seems to have offered more support in the past, so it’ll be interesting to watch also.  I left the 200 day moving average in there as a reminder of how far and fast the NASDAQ 100 Index has come from its lows.  The 200 day line is moving up now in an attempt to catch up some, but a reversion to the mean will come at some point.  That could show in a few different ways – 1.) NDX could tank to meet up with the 200 day, 2.) NDX could stay flat while the 200 day inches higher or 3.) The NDX could drop some more while the 200 day catches up and they meet in the middle.  None of these scenarios points to the NDX climbing too much faster and farther from here.

Williams %R shows a break from overbought and that’s another bearish indicator, but I’d like to see the 28 day indicator move lower before I’m really bearish.  Once it moves lower and turns higher from a shallower bottom, that’s really what we should be looking out for later in the week or next week.  That could be a good indicator of a time to move back into a more bullish position on NDX.  Interestingly, that should line up well with support holding on the trend lines of higher lows.  If both of those events don’t occur (support and %R turning higher), I’m holding off from opening a new bullish position on NDX through the large ETF, QQQQ.