Primary Chart: 11-Month Downtrend Lines, Support at June and September 2022 Lows Forming Right-Angled Triangle, Fibonacci Levels
The Nasdaq 100 (NASDAQ:NDX or NASDAQ:QQQ) has been in a sharp downtrend nearly all year with intermittent bear rallies that have been sharp and powerful. A week ago, despite price having already fallen significantly from August 16, 2022 peaks, this author identified the likelihood that the downtrend would continue even further to short-term targets at $269-$270. (More aggressive targets in a range from $254 to $267 were also identified in the September 2022 post, but those have not been reached yet.)
Now that price has fallen almost exactly to the June 2022 lows, a support line across those lows can be drawn—and this support level intersects with the downward trendlines (there are two alternative downward trendlines on the Primary Chart). When these two support levels intersect with the downward trendlines, a right-angled triangle is formed. This is also known as a descending triangle.
Because this is a multi-month triangle, it may not break easily; however, this bear market has broken conventional expectations repeatedly, so anything is possible. But price could make more than one attempt to break the lower edge of the triangle before succeeding. The next chart shows one such possibility. Note that there are many possibilities, and this remains just a single hypothetical price path that reflects the concept that horizontal line of a multi-month right-angled triangle might not break on the first attempt as lesser supports can.
Supplementary Chart A: Right-Angled Triangle with Hypothetical Price Path Involving Whipsaw Break Before a Successful Break Later in the Year
This hypothetical possibility does not make the chart bullish. It just recognizes that price action can work to confound bears and bulls alike. And it acknowledges that price can reach oversold extremes right at critical multi-month supports, which may require two or more attempts to break. Whipsaws are not uncommon on both intraday and longer-term time frames.
Even though the NDX / QQQ remains within a strong downtrend, the sharp rallies this past year have shown that even the bears have to be ready for anything. Bears anticipating a straight line lower can get annihilated.
The lower edge of this right-angled triangle is also right at multi-year support identified in the above-referenced post published September 22, 2022. Like a multi-month triangle, multi-year support may not break on the first attempt. Or if it does break in the next week, the first break may end up being a whipsaw break, that leads to price recovering back above the support (and lower edge of the triangle) to rally or chop further until the final break, which could be weeks or months away.
Supplementary Chart B: Multi-Year Support Level (Blue Rectangle)
The .618 retracement level is another level of interest that could hold and spark another bear rally. This level is the yellow line on the next chart, and it lies at $258 on QQQ. Another Fibonacci level has confluence with the .618 R, and lies just beneath it (teal blue).
Supplementary Chart C: Two Circles Identifying Target Zones That Could Spark the Next Bear Rally ________________________________________
Author's Comments: (1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view. (2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades. (3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success. (4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
Comment
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SPX and NDX have been trading similarly lately, and a bounce appears to be underway in both. Because of the severity of the downtrend and bear market this year, these relief rallies could fail at any time.