Originally published by Guppytraders.com
The Nasdaq is due for a correction. It has soared above the primary up trend line and achieved the trade band target of 6310. A correction is a high probability and trade band analysis is used to set the downside targets.
However a correction is not an end of trend. Following the correction there is a high probability the uptrend will resume a move towards a longer term target of 6820.
The monthly Nasdaq chart is used for strategic analysis and asset allocation.
The Nasdaq chart has two analysis features. The first feature is the long term uptrend trading channel (A). A trading channel is created by two parallel sloping trend lines. The lower trend line starts from the Nasdaq low in 2009, March. The trend line placement is confirmed by successful rebound tests in 2011, and in 2016 February. Trend line (B) starts in 2010 April. This trend line was broken on the upside in 2013 December. After 2013 December the trend line acted as a support level. The Nasdaq clustered around the upper trend line until 2016 January. The Nasdaq dipped below the upper trend line for five months in 2016 but in 2016 July the index moved above the upper trend line.
The Nasdaq has moved well above trend line B so this is now a long term support level. This is a very strong bullish trend signal but it also opens the potential for a pullback and correction.
The second Nasdaq analysis feature is the construction of trading bands. Trading bands are horizontal support and resistance levels. The lowest trading band was created and confirmed between 2010 February and 2012 February. The width of this trading band was projected upwards to give the first breakout target. When this was achieved, the width of the trading band was used to set the next upside target. This method has successfully set all the Nasdaq breakout targets since 2012, including the most recent 6310 target level.
Using this analysis method the most recent trading band target was 6310. This level was reached in 2017 June. The width of the trading band is projected upwards and gives the next target near 6820.
The monthly chart provides strategic analysis. The trading channel defines how the Nasdaq up trend develops. Investors expect to see the index retreat clustering near the value of the most recent trading band support near 5780. This confirms that when the index retreats it is a good buying opportunity for a continuation of the long term uptrend.
The trade band analysis provides an answer to the question of how high the Nasdaq might rise. The analysis method sets a target near 6310. In this type of market environment we use the ANTSYSS trade method to extract good returns from the consolidation and breakout developments.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.