Thursday's Market Minute: Nasdaq's Breakout Slapped Back Down

Nasdaq futures looked promising for the bullish crowd last week, as the tech-focused index contract broke above two key levels. The first was the 12,900 mark, a spot where price frequently topped out during the past year, and the upper boundary of a Rising Wedge-type pattern extending across the highs from late January/early February and from late March. Friday looked like it had the potential to be especially good as the /NQ broke above the previous highs from Aug. 25 as well on the back of a +1.6% green candle. But the market has faded this week, with the contract losing more than -2.4% from Friday’s close as of this morning’s premarket. There has also been relatively low conviction on the part of traders during the recent rally as shown by volume, which has come in below its 50-day Simple Moving Average every day since Mar. 27.

Overall, though, the technical situation doesn’t look too bad. First, a retest of a previous resistance level after an upside breakout is not uncommon – though it may not have been exactly what the bulls wanted, it’s not cause to head for the hills yet. Second, widely-followed indicators such as the 21-, 63-, and 252-day Exponential Moving Averages are all sloping upward still, suggesting the trend direction remains up. Third, price is still holding above the 12,900 level. Finally, momentum according to the Relative Strength Index (RSI) is still in the hands of the bulls, though it did fail to reach the overbought area during the last rally.

In terms of support and resistance, look to the 21-day EMA around 12,825 for price to find some footing if it fails to hold 12,900. To the upside, bulls need to break above the Aug. 25 high of 13,145 as well as last week’s high close of 13,308.

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