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A critical week looms for index traders

US stock indices are testing significant support levels. This sets next week up as a potential make or break period.

US NDAQ 100 cash

The Nasdaq chart looks particularly interesting. Over the past 4 weeks it has paused at a level that would confirm a neat resistance line.

This week’s candle has had the largest range of the previous four. A weak finish tonight (Friday) would confirm a fairly large red body candle and be a sign of potential weakness. If this was to be followed by more selling next week and a close below recent supports, we would be left with the weekly candles making lower lows and lower highs. This would begin to look pretty nervous, especially given that the slow stochastic in the box below the chart is well up in the overbought zone.

However, the big test will be the September lows around 4630.  This is currently about 3.5% below current levels. A break below that would start to look very much as though a return to the major pattern support around 3900 is a real possibility. This is the low of February last year and about 23% from current levels.

But it won’t necessarily be doom and gloom. The most likely scenario is that the support holds.  This sets up for more drift and work around or a bit above the current resistance level.

As usual it will be a matter of responding to what the market does.

US 30 cash

This week’s low in the Dow also bounced off the top end of a support zone. The bottom end of that support is around 17,890 and a little over 1% below current levels. A fall of around 1.7% from here would get clearly below this support and look bearish for the medium term.

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