The Nasdaq Composite and Nasdaq 100 both found buyers near important support in yesterday’s trading and have bounced higher. That is the good news for the buyers. The next challenge is getting above and staying above the 100-hour and 200-hour moving averages.
The indices are trading between those moving averages in early trading. That leaves the battle in a short-term neutral area. Buyers stopped the decline, but they have not yet taken full control.
Nasdaq 100: Buyers defend the swing area
The Nasdaq 100 fell moved lower yesterday after the FOMC rate decision and further below it’s key 100 day MA at 29230, but sellers stalled the decline near the swing area around 28,953.06 to 28,822.67. That area has attracted buyers on a number of tests going back to June.
The rebound in to the close took the index back toward unchanged on the day. Today, the sharply higher open, has taken the index back above its next key target at the 100-hour moving average at 29,310.79, with the price near 29,349.87 at the time of the analysis. The next key target is the 200-hour moving average at 29,431.12.
For buyers, the roadmap is straightforward:
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Get above and stay above the 200-hour moving average at 29,431.12. More bullish.
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Move through resistance at 29,496.93 adds to the bullish bias.
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A sustained break would increase the bullish bias and put 29,669.40 back in play.
For sellers, a move back below the 100-hour moving average would weaken the rebound. The 100 day MA at 29230 break would add to the bearishness again. Below that, and a break below 28,9953 to 28,822.67 would give sellers more control, with the 38.2% retracement at 28,545.95 as the next downside target.
Nasdaq Composite: Sellers had their shot
The Nasdaq Composite broke below its 100-day moving average yesterday at 26026, and moved down to test the lower end of a swing area between 25,978.42 and 25,910.82. Buyers stepped in and the index bounced into the close. Key bounce kept the buyers in play but the price closed near the 100 day MA. .
What we do know is that the sellers had their shot. They missed.
The big bounce today at the open has seen the recovery move the index back to its 100-hour moving average at 26,294.54, with the price near 26,297.06. The 200-hour moving average at 26,352.41 is just above and is the next hurdle.
If buyers can get above and stay above both hourly moving averages, they would take more control. That would shift the focus toward the resistance zone between 26,676.31 and 26,856.24.
If the price fails against the moving averages and turns back down, the 61.8% retracement at 26,123.33 becomes the first downside target. Below that, 100 day MA at 26026 and the swing area at 25,978.42 to 25,910.82 will become the key risk-defining support. A break below that area would open the door toward the 38.2% retracement at 25,474.91.
Trading education: A break is only the first step
Moving through a technical level is important, but staying through it is what confirms that buyers or sellers are retaining control.
In my book Attacking Currency Trends, I emphasize using technical levels to define the bias and the risk. In this case, the 100-hour and 200-hour moving averages provide that roadmap. Above both averages, the bias becomes more bullish. Below them, the rebound remains vulnerable.
The lesson is simple: break, hold and confirm. Buyers defended support, but they still need to prove they can keep the price above the moving averages.
The roadmap
For both indices, the price action around the 100-hour and 200-hour moving averages will provide the next clue.
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Bullish trigger: Get above and stay above both hourly moving averages.
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Bearish trigger: Fall back below the moving averages and then break the defended swing support.
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Neutral area: Between the 100-hour and 200-hour moving averages.
In the video above, I outline the levels that will determine whether the rebound turns into a more meaningful recovery or whether sellers regain control.
This article was written by Greg Michalowski at investinglive.com.