Charting a Breakout into a Resistance Target for the NASDAQ

May 22, 2014: 12:14 PM CST

The tech-heavy NASDAQ index has been underperforming the S&P 500 and Dow Jones (both shy of all-time highs), but the NASDAQ may be showing signs of bullish life.

Let’s take a look at a breakout that slammed into the first resistance target, and what levels to watch should buyers extend the breakout beyond the current ceiling.

We’ll start with the Daily Chart:


A first glance at the chart shows a clean breakout above the falling (downtrending) 50 day Exponential Moving Average (blue EMA) which is bullish, but let’s take it one step beyond that.

The index is trading up into the first resistance target level into 4,175. It’s the upper Bollinger Band along with prior price highs (resistance) from January and April.

This makes 4,175 our simple focal point for additional bullish breakout plays (targeting 4,200 and beyond into “Open Air” toward 4,280 if above 4,200).

A stall or reversal here into known resistance would continue the sideways trading range also shown in the S&P 500 and Dow Jones (see my prior update).

In fact, if we use simple level planning to create short-term trading strategies here, we’ll be...

  • Breakout Bullish into Open Air above 4,175 and 4,200
  • Breakdown/Bull Trap or “Range Continuity” Bearish under 4,130
  • Neutral/Cautiuos in this “Yellow Zone” Between 4,130 and 4,175

Here’s a closer view of the NASDAQ, Rectangle, and Fibonacci Retracement Grid:


Let’s take the chart one thing at a time.

First, note the yellow highlighted triangle between the larger black and smaller blue converging trendlines.

Price broke freely through the upper falling trendline today into an intraday trend day toward resistance.

Second, note the larger Fibonacci Retracement (blue) grid drawn from the recent high to low.

We note the 50% or “halfway point” retracement into the current 4,160 level which is a focal point or pivot point since April (price has consistently resisted near this area).

Going forward, we would again look to play bullishly above the 4,160 and 4,175 level and note the 4,200 “Round Number” higher target along with the 61.8% Fibonacci Target into 4,210.

Otherwise, we’ll be cautious on any real-time (sudden) reversal down against the 4,160/4,175 level which would target a potential play all the way back to the lower rising trendline which is currently intersecting 4,050.

Incorporate these simple levels into the analysis and trade planning you are using currently.

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Corey Rosenbloom, CMT
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