With the mention of the Russell 2000 and NASDAQ forming similar patterns, let’s take a quick look at the actual NASDAQ index to let it speak for itself.
NASDAQ Daily Chart:
The Index formed a negative momentum divergence going into resistance in May, which led to the June and July downswing (primary downtrend swing), which leads us to the current structure, which potentially could be the breakdown of a tight rising channel and termination of the recent up counter-swing.
Price is now trapped between the falling 200 day moving average (which is a significant development itself) and the rising 20 and 50 day EMA. Actually, price closed with a doji today just below those levels. The market hangs on a precipice, and it would not take much to tip it for a move to the downside.
The story is the same in terms of volume - volume has clearly not confirmed the recent rally, and has declined virtually every day since late July. If price is going to inflect higher, it is likely to do so here, but the odds are possibly weakening for further upwards price action.
Let’s move to a quick glance at the weekly chart.
NASDAQ Weekly Chart:
The weekly downtrend is not as pronounced as in the S&P 500 and Dow Jones, namely because price on the most recent downswing formed a higher low (but has now possibly formed a lower high). This structure leads us to believe we could be forming a larger consolidation pattern - perhaps a triangle of sorts. Nevertheless, the market appears to be coming into balance after swinging wildly into 2008.
The 2,450 area is critical for bulls to defend, but it looks unlikely they’ll be able to do so unless the current structure shifts in their favor.
Typically, the 200 week moving average provides support - and it has - but it has provided sloppy support, rather than clean patterns (breaking through both on a close and intra-week basis).
Major components Apple Inc (AAPL) sits at daily support via the 20 and 50 day EMAs;
Google (GOOG) appears to be inflecting down off a failure test up at resistance;
Research in Motion (RIMM) is similar to Apple, in terms of daily moving average support;
and finally the Semiconductor Index ($SOX) looks very similar to the above NASDAQ chart, in terms of sitting at a turning point.
