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Is NDX Bottoming?

After trading lower during the early session, U.S. stocks staged a sharp recovery into the close. SPX ended the day with gains of 17.83 points or +0.41%. INDU rebounded 102.32 points higher or +0.30%, recording its best intra-day swing since last December. COMPQ rallied 68.08 points or +0.47%, and NDX gained 92.61 points or +0.63%.


Investors attribute Wednesday market turnaround to signs of progress emerging in Washington on the debt ceiling debacle. Others noted the strong recoverable in the recently battered mega-cap technology names.


Technology stocks have come under selling pressure in recent weeks, as rising interest rates are negative for growth-related companies making their future cash flows less valuable. The debate continues to heat up between growth and value investing and the stay-at-home and the reopening/reflation trades.


The three most widely followed indexes in the U.S. are the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite Index. The broadest of U.S. indexes remain the Wilshire 5000 Index as it includes the bulk of all stocks from the U.S. stock market.


The September sell-off was broad-based, impacting large-cap, mid-cap, small-cap, growth, value, momentum, income, and various sectors. Investors remain cautious on Nasdaq 100 Index. NDX is one of the most influential large-cap growth indexes, consisting of the top one hundred market-capitalization non-financial companies listed on the Nasdaq Stock Market Composite.


After succumbing to a 1,367.11-point sell-off or 9.50% correction over the past month, the question remains is NDX bottoming?


Market uncertainties continue to dominate headline news, and volatility remains high. Market pundits continue to warn of a market correction. Is the recent September market setback another normal pullback, or is this the start of something more?


After reviewing key U.S. stock market indexes, something caught our attention this week. The Nasdaq 100 Index (NDX) showed technical signs of a potential bottom. The following developments merit attention:


(1) During Monday’s market sell-off, NDX slipped below its 7/19/21 reaction low (14,445.07), at least from an intra-day basis. However, the technology-heavy index managed to close the day at 14,472 or just above July’s reaction low.


(2) On Monday (10/4/21), NDX came within striking distance of its 50% retracement (14,334) from the May-September 2021 rally and rebounded strongly from this key support.


(3) Today, an important technical pattern may have developed. NDX is the only key U.S. index to have recorded a positive outside-day reversal pattern.


(4) A brief review of NDX since the Covid-19 pandemic low at 6,771.91 (3/23/20) shows NDX has successfully found key support along with the 38.2%-61.8% retracement of its prior rallies. For instance, the March-Sep 2020 recovery triggered an NDX consolidation to 10,677.85 (9/21/20) or above the 38.2% retracement (10,210). Again, the 11/2/2 to 2/16/21 rally led to a pullback to 12,208.39 (3/5/21) or above its 61.8% retracement (12,065.5).


(5) The 200-day ma is no longer far apart from its price. The moving average is now rising near 13,990.5 or pivotal support.


(6) Key technology-based indexes such as the S&P 500 Technology sector (XLK), Computer Technology Index (XCI), NYSE Fang Plus Index (NYFANG), Semiconductor Index (SOX) are also rebounding from their respective key supports.


It may be too premature to confirm a bottom in NDX without further technical work to repair the technical damages incurred during the September setback. However, the above technical actions still hint at a correction within the context of an intermediate-to-longer term uptrend.


Nonetheless, if 10/4/21 is indeed a market bottom, NDX first needs to clear above its late-September technical breakdown at 14,773-14,821. Secondly, NDX must close the 9/28/21 gap-down (15,040.57-15,106.45) and surge convincingly above 15,183-14,184 or the 50-day ma and the left shoulders of a potential head/shoulders top. Accomplishing the above will result in growth investors and momentum traders returning to technology and growth-related names.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


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