SAMT Blog
Not a major top for Nasdaq100
13. November 2020, by Bruno Estier
Technical Analysis
As the US equity market is undergoing a correction in the last three weeks and as last month we mentioned that October to April is the seasonally bullish period, a review of the leading sector of the US market, the Nasdaq100 is necessary to evaluate the strength of its uptrend.
The Relative Strength (RS) of the Nasdaq100 versus the S&P500 (dotted green line on the upper panel) has been stalling below its July top taking the form of a rising triangle and currently its level is well above the low made in early September though having flattened recently. But it is still in uptrend as the chart does not display a lower low. Therefore it is likely that the Technology sector mainly represented within the Nasdaq100 is still a leading sector for the US equity market.
The bullishness is not limited to a few large Technology stocks as we note that the Relative Strength of Small Caps versus S&P500 (black line on upper panel) has been bottoming and is rising since mid-September, which is a classic bullish sign of widening Breadth. Thus the last three week pullback of the Nasdaq100 is more likely a pause in the Bull market than the beginning of a Bear market. This pullback relieves an overbought situation, which was highlighted by its rise since May between the first & second Bollinger band and by a spike in late August and a retests in October of the second upper Band. The Nasdaq100 is pulling back for the second time and its weekly close on the last day of October toward the moving average 20wk (the centre dotted line) is rising fear of that a 10% selloff would extend toward the Moving average 40 week (9931 ) . The fear can be noted on the VXN (orange dotted line on the upper panel) reaching the previous spike high of September near 41.30 %.
However it is key to remember that volatility above 40% for VXN are rare and often signals a nearby low on the underlying Equity index ! So it may well be time to be contrarian and not to panic along the classic price momentum indicators, like STOCHASTICS or MACD on the lower panel which are crossing down. Of course the Nasdaq100 needs to display a reversal up in the coming weeks to avoid to breaking below the previous low 10677, ideally holding above 10900 the rising former resistance trend line dating from October 2018. Such a rebound in price will validate the ranging pattern between 12430 and 10700, which later will open the door for higher prices toward 14000. So trend-followers beware!
About the author
Bruno Estier is an Independent Market Strategist and founder of Bruno Estier Strategic Technicals (bruno.estier.net). Based in Geneva, he is a global market advisor and technical analyst coach for professional traders and portfolio managers.
He is a past president of the Swiss Association of Market Technicians (SAMT) and served on the board of directors as chairman and secretary of the International Federation of Technical Analysts (IFTA). Bruno holds a MSTA from The Society of Technical Analysis (STA) in London and the CFTe and MFTA designation from IFTA.
He worked for 12 years as a technical analyst with JP Morgan in Zürich and Paris and 10 years with Lombard Odier & Cie in Geneva. He earned an MBA from The University of Chicago Graduate School of Business and a Masters in Economics from the University of Saint Gallen (HSG).
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