May 4, 2012

NASDAQ target reached! Now what?



In post published 15th of Feb for the technological index NASDAQ100 we set target of 2787 when the index traded at 2575. The market seemed to be overbought at that time but the analysis used proved to be quite accurate - on  26th of March the target was reached.

The target setting is based on a simple technical analysis which uses the triangle consolidation length (within the rectangles) as target pointer. When the breakthrough of the triangle is spotted then the the target base is set at that point. Adding triangle length to the base gives the next target level.

As seen on the chart the targeted level has been exactly reached. Since then the index has dived into a correction. Further analysis of the last two years index chart shows interesting seasonal pattern. NASDAQ100 enters bullish phase which usually starts at year end. The bullishness continues roughly until the spring months April-May. The following summer period tend to be corrective with zigzag consolidation moves. This pattern has been followed in both 2010 and 2011.

Nasdaq in repeating seasonal pattern
Nasdaq in repeating seasonal pattern

If the mentioned pattern is repeated again this year we have just entered the same corrective consolidation.  Considering the fact that the technological companies are relatively overvalued (to name AAPL with the highest weight in the index) this might be the case. The indicative bottom should be 2400 - the 200 moving average, which tend to be strong support. 

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