More NDX Level Analysis

by Jay Pestrichelli on August 8th, 2012

Last Thursday we wrote that the NDX continued to hit resistance at the 2655 level and it would be a key turning level to determine where the market would go. One day after, the index broke above it and has had 3 days of substantial gains.  As we thought, the rest of the indexes followed and now all we seem to hear about is how stocks are approaching 4 ½ year highs.

Using the same index, here’s the next set of levels we are expecting. On the up side, look for the 2740 level to be tested. The market showed resistance there in mid-March and again in late April. While that’s only another 1% higher, expect some stalling to happen there. A break through of that mark will put the NDX into a position to hit a new 12 year high over  2800.

However, more likely is that the index pulls back after 2740 and reaffirms previous resistance as a new level of support at 2655. If things get ugly in the market watch for a retracement all the way down to 2550.

One other technical support level seem to be the 150 day moving average. Since May, the index has found some support off that level and while the 150 day is not a typical MA to track, it has been where the market has found support.
In summary, over the next month we’re looking for a relatively tight range of (2550-2740) in this leading index. So from a hedging perspective, this means we’re going to take advantage of this outlook by generating income at tighter levels and buying protection that will keep costs low as the expectation of a total meltdown is seen as less probable.

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