NDX Approaches Critical Support Levels

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Primary Chart: NDX's Critical Support Levels Include a Two-Month Upward Trendline, Fibonacci Levels, and a Key Price Zone (Teal Box)

The Nasdaq approaches critical support this week as indices give back gains from the recent rally. The most immediate support has already been reached—see the teal-blue rectangle showing a major zone of price support formed by February and March 2022 lows and early June 2022 peaks.

This zone of price support also coincides with key Fibonacci retracement levels. Two key Fibonacci retracement levels lie just below where NDX trades.

12,947.55 is the .382 retracement of the entire rally from Covid 2020 lows to all-time highs in November 2022
12,695.74 is the .382 retracement of the recent two-month rally ending on August 16, 2022;
12,379.06 is the .50 retracement of the same two-month rally;
12,062.38 is the .618 retracement of the same two month rally

This area of support ranges from 12,000 to 13,054. It likely will lead to a bounce somewhere in the range of 12,350 to 12,750.

To determine where price will reverse, one could just pick the strongest support level near the .618 retracement with a tight stop in place. Or one could watch price carefully at each level to see how price responds. If price lingers at the support level, and slides into it without bouncing (or if it bounces and then falls right back into it and holds there), it likely may fail leading to the next level. If a support level quickly repels price, then the support may be worth considering for a short-term (several days) bounce off the support.

Key moving averages shown on the supplementary chart below suggest that the momentum, at least this week, has shifted to negative. To continue the rally, price must, at a minimum, recover the 21 EMA (Daily) and the 8 EMA (Daily) with closes above both. Then both need to shift upward. Because this has not happened, the path of least resistance remains down. But the risk-reward for a short position on the NDX is not idea given that major price support has approached and will likely lead to a bounce, at least in the short term.

Supplementary Chart A: Key EMAs Broken and Sloping Downward

If price bounces, the gap fill area around 13,200 appears to be a spot where price could reach in the short term. This gap may also serve as modest resistance depending on the bounce.

NOTE: This article is intended to present an objective, technical viewpoint of NDX's current price action and key levels using technical analysis. The author has no open position at the time of publication (August 23, 2022) on NDX, NQ, or QQQ, or related leveraged ETFs / leveraged inverse ETFs or options on the same.

DISCLAIMER: This post is published solely for educational / entertainment purposes and does not constitute financial advice or an investment recommendation and cannot account for any person's particular financial circumstances. The author would not want other investors / traders to lose money by relying *solely* on this idea rather than doing their own due diligence. Before entering any trade, please evaluate the risks of (i) the instrument / security being traded, (ii) the type of trade and its timeframe, (iii) risks inherent in that type of trade and its time frame, (iv) the inherent risks of shorting securities (presenting unlimited risk without hard stops in place), (v) the inherent risks of trading options, leveraged ETFs, and cryptocurrencies, and (vi) all financial risks arising each person's personal financial circumstances.

ノート

Price has bounced off the support zone after 2 days of choppy, trappy price action. Price is in the gap-fill area identified on the main chart above. NDX can likely reach 13,200 tomorrow, though anything is possible after Jackson Hole speech by FOMC chair Powell.

ノート

The supports mentioned above should be watched as NDX has sold off hard today following Powell's Jackson Hole speech.
NDX 12,695 (.382 R)
NDX 12,421 (upward trendline today -- tomorrow it's higher)
NDX 12,375 (.50 R)

ノート

NDX has reached the .50 retracement identified above at 12,379.06 and cut below it a bit before catching a modest bid intraday today (August 30, 2022). So NDX closed just below this retracement at 12,342 today. It remains tough to say where price heads next, but NQ futures are up about a half a percentage point this evening. If the .50 R level is reclaimed tomorrow, it may be that NDX bounces up to fill the gaps just over 13,000 before heading lower. No bold predictions here in this choppy market -- just watch these levels.

If NDX starts heading lower, watch that .618 retracement at 12,062. If NDX is to retest lows in the coming week or two, that .618 line must be broken decisively. If it holds, or is broken and quickly reclaimed, then NDX likely bounces into the next couple weeks before heading lower again.

Thanks for following.

ノート

A tag at NDX 12,062 at the .618 R tomorrow looks more likely with NQ futures down about -.95%