Nasdaq 100 index Technical Forecast: BEARISH
- The Nasdaq 100 index has likely formed a bearish Gartley pattern - a classic harmonic configuration
- The MACD indicator formed a bearish crossover and pierced below the neutral midpoint, pointing to mounting downward pressure
Chart by TradingView
The Nasdaq 100 index has entered a consolidative mode since mid-April, falling more than 6% from its all-time high. The index formed a bearish Gartley pattern, as highlighted in the chart above, suggesting that a deeper pullback is likely.
The Gartley pattern is a classic harmonic chart pattern, based on Fibonacci numbers and ratios. A bearish one starts with a downtrend from point ‘X’ to point ‘A’ with a price reversal at point ‘A’. The ‘XA’ leg is followed by a bearish ‘AB=CD’ pattern.
Using Fibonacci ratios, the retracement between point ‘X’ and point ‘B’ should approximate 61.8%. The retracement between point ‘C’ and point ‘A’ should be close to 38.2% or 88.6%. Point ‘D’ is usually the 127.2% or 161.8% extension from point ‘B’. These Fibonacci levels do not need to be exact, but the closer they are, the more reliable the pattern tends to be. The bullish version of the Gartley pattern is simply the inverse of the bearish one.
In this scenario, the ‘D’ point is the all-time high and may be used as a reference for overturning the bearish implications of the setup. The ‘C’ point can be viewed as a reference for follow-through if the pattern plays out.
An immediate support level can be found at 12,900 – the 127.2% Fibonacci extension, breaking which may lead to further losses with an eye on 12,487 – the 100% Fibonacci extension. Prices pierced through the 50- and 100-day SMA lines decisively, suggesting that near-term trend has turned bearish.
The MACD indicator is trending lower beneath the neutral midpoint, suggesting that downward momentum is prevailing.
On the weekly basis, the bearish Gartley pattern may serve as a trend-reversing indicator if prices breach below the ‘C’ point. A negative MACD divergence is observed, suggesting that upward momentum is fading. The 200% Fibonacci extension (14,013) remains a key resistance in the medium term.
Nasdaq 100 Index – Weekly Chart
Chart by TradingView
--- Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
