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The Nasdaq 100 is forming a textbook downtrend pullback setup on the 4-hour chart? Will the sellers jump back in or is there an upside breakout ahead?

Nasdaq 100 (NAS100): 4-Hour Forex Chart by TradingView
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Nasdaq 100 (NAS100): 4-Hour Forex Chart by TradingView

On the four hour chart above, we can see NAS100 has been trending lower, which first started all the way back to just under the 16,000.00 handle in mid-July.

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And the recent move was pretty significant as the early September consolidation turned into a big downside -5% break to just above 14,400.00, akin to navigating a rugged terrain with sudden drops and rocky paths.

But here’s where the plot thickens: We’re currently in the midst of a sustained bounce, and now the burning question is whether this upward momentum will entice the sellers to re-enter the downtrend once again?

Of course, the market’s future direction will likely hinge on this week’s busy macro economic calendar, but from a technical standpoint, there are compelling arguments that may draw in sellers once again.

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If you examine the chart closely, you’ll notice a convergence of technical factors within the 15,000.00 – 15,300.00 range. It’s a battleground where simple moving averages, Fibonacci retracement levels, and a descending trendline come together.

In addition to this, the stochastic indicator is signaling potentially overbought conditions in the short term. This suggests that the market might need a moment to catch its breath after the recent ascent, akin to a runner taking a breather after a sprint.

So, here’s the scenario: Should NAS100 retrace to that convergence area and unveil bearish reversal patterns, we might witness a resurgence of sellers, pushing the index back into the downtrend. The swing low around 14,400.00 could be vulnerable, especially if an influential bearish catalyst emerges this week.

On the flip side, what if the plot takes an unexpected twist? If a potent catalyst surfaces but, instead of repelling, it attracts buyers, then we might witness a sustained climb above the convergence area.

In the case of a sustained break above the 61% Fibs, 200 SMA and falling trendline pattern, the index could be on a journey to revisit the September highs around 15,600.00 this week, a plausible target given the average daily true range of approximately 235 points.

Whichever bias you choose to trade, make sure to use stop losses and risk management in your exit strategies!

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