The NASDAQ 100 has pulled back slightly to kick off the trading session on Wednesday but has also found enough buyers underneath to turn things around and show signs of life. By doing so, it looks as if we are going to continue to see this market build a bit of a bullish flag, which is interesting considering that we are right in the midst of her earnings season. In other words, we should see plenty of volatility but you can clearly see that the market is trying to do everything he can to build that pattern.
If the market were to take off and break above the top of the flag, it’s likely that we could see a move toward the 13,000 level. The 13,000 level is of course a large, round, psychologically significant figure, and therefore a lot of people would be looking to it or either a target or resistance. Because of this, one would expect that to be where a lot of take profit orders are found.
The alternate scenario is that we break through the hammer that formed on Tuesday, which opens up a rather negative move. In that scenario, we could be looking at a drop down to the 12,200 level, which is where we had seen quite a bit of support on the way back up. Breaking through that then opens up the possibility of the NASDAQ 100 dropping down to the 50 day EMA. That would obviously be a rather significant selloff, which would be a situation where risk appetite starts to get hit hard.
The only thing you can count on at the moment is going to be a lot of volatility. Because of this, position sizing will be crucial as the moves could be rather rapid. This will be especially true as companies report earnings after the bell. That being said, we are more likely than not on the precipice of a bigger move in one direction or the other. As things stand right now, it looks like the bullish flag suggests that the buyers are trying everything they can to push this market higher.
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