NASDAQ Support at the 50-Day Moving Average

The market has now been in correction mode for a few days now. Focusing on the NASDAQ, as of last Friday, the RSI was in overbought territory and a Doji appeared. Since then, the NASDAQ has been lower. But it is important to see that sometimes a "psychological level" can provide either support or resistance. In the present case, the 50-day moving average has become support for this NASDAQ's pullback, as the chart shows (click to enlarge).

Note how changes occurred right at the (rising) 50-day moving average. While the RSI remains below 50, the traditional value above which a bullish trend is viewed to be in place, it does still remain above 40 -- a level that can be viewed as support during an uptrend.

Does the uptrend remain in tact? Remember that an uptrend means higher highs and higher lows. At the present time, the recent lows remain above the low from the end of January, so the uptrend is still in force. Also, note the increase in the RSI over the past few days. This too provides some reason for optimism.

The fate of oil production and shipping in the Middle East will ultimately determine whether the present support level holds. However, the February employment number will be released on Friday morning (8:30am). This will be pivotal. A very bad number then absent weather influences, will very likely cause support to be broken -- for now.

NASDAQ Range

The chart below shows the NASDAQ. To determine support/resistance in the near-term, you can use Fibonacci retracement, but this doesn't always work well when the high-low values are fairly far apart. As an alternative, I have used the Raff Regression Channel Lines tool from StockCharts.com (this is sixth top button from the right on the annotation screen).

Absent the Raff Regression Channel tool, the next possible target for NASDAQ is its 200-day MA at 1992.85. The Raff Regression Channel indicates a slightly different support level, the Raff lower bound of about 1960, which is fairly close to the short-term top from early October of last year.

Note that the RSI is displaying an oversold reading at present, as oversold as in late January. So, it remains to be seen whether we will be testing support. Also, the NASDAQ continues to underperform the overall stock market (S&P 500).

According to the Raff Regression Channel, resistance is currently around 2080 (its upper channel). A prerequisite for moving there is that the NASDAQ begin outperforming the overall stock market in the next few weeks.

How can you determine if this is likely? Examine the performance of some of the major components of the NASDAQ. Right now, the semiconductor stocks (SMH) might be ready to break out, which would bode well for the NASDAQ.

Examing the chart of SMH and see if you think it will likely break out. Follow its actual behavior over the next week or two and track the interrelationships between the SMH and NASDAQ over that period.