NASDAQ 100 Continues to Hit Resistance

by Jay Pestrichelli on August 2nd, 2012

Although the NASDAQ 100, or NDX, isn’t considered in the 3 major indexes that most people follow, it has historically been a good leading indicator of where the market may go. We’ve all heard of the popular ETF QQQ, which is based off the NDX and usually most of us just assumed that the Q’s were the NASDAQ Composite, which IS a major index. But actually, it is based off the NDX.

The NDX has had problems since July 5th breaking through the 2655 level. Give or take 3-4 points, the NDX has failed to close above this level on 7/5, 7/19, 7/20, 7/27, 7/30, 7/31, 8/1 and so far today, 8/2. This has been a key level back in March and April as well. The chart below illustrates this.
So what does this mean? When we interpret resistance and support levels, it simply means it’s a decision or turning point for a chart. In this case, if the NDX continues to fail here, expect it to put in a reversal and head lower in the short term to some level of support around 2540.

However, if the NDX can break through 2655 and close above it once and get one day to conrim it, expect a run up. On the above chart, you can see that once it broke through in mid March, it ran to nearly 2800.

As hedgers, we like use these levels as a technical check of where we place protection or sell options for income. However, this is only a check. We use the math of managing hedging costs to really determine our strikes as we’ve discussed in other posts to this blog.

Bottom line, we’re watching the NDX as a leading indicator as to where the market is going. If it can break up above the 2655 level, expect the S&P and Dow Jones to follow it higher. If it fails and starts to head down, the others should follow in kind.

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