Nasdaq Composite Index Slips from All-Time High on Profit Taking and Dangers Ahead

The Nasdaq Composite Index closed at 5,368.81, down -30.11 (-0.56%) lower from its previous close of 5,398.92. Today, the index traded between 5,364.91 and 5,396.27 before settling. The 52-week range presently sits at 4,209.76 and 5,398.92.

The Nasdaq’s volume of 391 million shares trading hands today was higher than Friday’s 197 million (due to it being a shortened trading day) and above the 386 million in the session before that. Investors were taking profits after the Thanksgiving holiday in the U.S.

The Nasdaq Composite Index saw 822 issues advance, compared to the 1,969 that fell (188 unchanged). There were 268 companies that recorded new highs while just 67 formed new lows.

Today, it opened -11.00 (-0.20%) lower at 5,387.92. The index made back half of those losses within the first hour of trading but that proved to be the high of the session.

Unlike the past few record-setting sessions, things were downhill from there. While the index did manage to hold its ground for the next three hours, it accelerated its losses deeper into the red for the last two hours of the day:

NASDAQ - Recap and Outlook for Nov 28 2016 - ONE

The intra-day chart (above) shows that the Nasdaq Composite Index failed to find the optimism which was evident during the past week.

According to the blue trendlines, based upon the MACD peaks, this negative sentiment may have pushed the index lower than what is justified. But this does not mean that more traders won’t get scared into liquidating more positions now that a streak of consecutive record highs has ended.

The lower indicators are showing mixed signals at this time. While the MACD has just made a fresh cross and shows a bullish trajectory with healthy slope, the Stochastics has already entered over-bought territory and could retreat from here. As for the RSI, which looks very neutral, it could move either way.

NASDAQ - Recap and Outlook for Nov 28 2016 - TWO

On the 5-day/5-minute candle chart (above) we can see that the Nasdaq Composite Index failed to breach the lower (green) line of an ascending trend channel twice (red circles). In my previous report on the Nasdaq, I mentioned:

“that the Nasdaq Composite Index is at a crucial turning point. It must decide if it is going to break down from the existing ascending trend channel (since it is right on its lower support line) or break above the lower green line of a different ascending trend channel.”

I went on to say: “Until the index can re-enter the higher ascending tend channel, that channel’s green support line is actually acting as a resistance and giving the index and excuse to bounce off of it like a ceiling.”

Indeed, the two red circles make it clear that the recent rally ran out of steam. With today’s lower open, beneath the green support line of an existing ascending trend channel, this line easily turned into a resistance (yellow circle). Since we have now fallen below two different ascending channels, you can expect both of their lower (green) lines to act as a resistance for the time being.

There does exist the possibility that we could retest these lines fairly soon, because all three of the lower indicators have potential to rise immediately from current levels (green arrows).

NASDAQ - Recap and Outlook for Nov 28 2016 - THREE

On the 1-month/30-min. candle chart (above) we can see that the Nasdaq Composite Index has now opened the door wide to allow for further declines.

This chart shows both ascending trend channels which the index now trades beneath. Both of the support levels of these two channels are now acting as a double-resistance, as the index will need to penetrate both simultaneously in order to allow for further short-term gains.

The much easier path is to the downside, with only a couple longer-term dotted trendlines (purple and red) standing in its way to the red line of resistance of a sideways trend channel. I would be surprised if we do not test this red line very soon.

This is even despite the fact that the Stochastics already looks extremely over-sold. While the MACD and RSI may turn sideways anytime, their current trajectories are both lower at this time.

The blue trendlines, based upon the MACD peaks, agrees with me that the index is, in general, overbought on this time frame.

NASDAQ - Recap and Outlook for Nov 28 2016 - FOUR

On the year-to-date chart (above) we can see that the Nasdaq Composite Index has the potential to see declines lasting even longer.

Here, we compare the index to the Russell 2000 Index (IUX), which is shown in black. The small-cap index has increased drastically over the past two weeks but its 15-day win-streak came to a grinding halt today.

While the Russell 2000’s recent divergence gives the Nasdaq a very bullish bias to rise in order to close this gap, there is another perspective that traders should be aware of.

That is: If the Russell 2000 were to see a sharp decline over the course of the next few sessions (extremely likely after making its longest win streak in 20 years) then other indices could copy its downward moves.

in other words, just as the index of smaller companies rose more rapidly, it could fall more rapidly in order to normalize the distance between both indices.

With the Nasdaq presently trading in the upper half of the ascending trend channel on this chart, there is indeed some room to the downside.

Even the most bullish of the two blue trendlines that I have drawn (which are based upon the MACD peaks) suggest that the Nasdaq could hit the bottom support line of this channel (a decline of over 5%).

The lower indicators of this year-to-date chart allow for a lengthy decline in both the Stochastics and RSI, while the MACD, which has been rising for a while, could begin to flatten and form a top soon.

For the trailing 1-month period, the Nasdaq Composite Index has made a +3.44% return. Going back a year, it has yielded +4.71%. It was the biggest loser of all three major U.S. averages today.

The Dow Jones Industrial Average lost -54.24 (-0.28%) lower to 19,097.90 while the S&P 500 retreated -11.63 (-0.53%) lower to 2,201.72 (barely holding its ground above the psychologically crucial 2,200 level).

7 out of the 11 major industry groups of the S&P 500 retreated today, with Financials (-1.39%) leading the declines. The Energy (-1.31%) and Health-Care (-0.85%) sectors also performed poorly. The Utility (+1.97) sector was the best gainer, followed by Telecoms (+0.84%) and Real Estate (+0.31%).

As U.S. stocks slipped from all-time highs on profit-taking, it seemed that almost every asset class reversed recent moves.

While there were numerous reasons for the pull-back in U.S. equities, one cause could have to do with an attack which occurred on a campus in Ohio State. It is reported that a vehicle plowed through people prior to the attacker beginning to stab people.

Another reason why stocks might have edged lower is the fact that the “Donald Trump effect” might have lost strength. It seems that the honeymoon is now over and the optimism surrounding Trump’s pro-business and stimulus talks are beginning to be overshadowed by doubts and other concerns.

Investors are shifting their attention to threats, some of which could include the Italian referendum and the French Elections. Other risks include those stemming from Austria, the U.S. debt ceiling, the FOMC meeting, and OPEC.

Despite the Saudis saying that a cut isn’t necessary, the price of oil gained today on optimism after remarks from Iraq that they would cooperate with any production cut.

Gold prices managed to make their biggest gain in 4 weeks today, slowing recent losses and this was partially due to the U.S. dollar falling as U.S. bond yields retreated.

The CBOE Volatility Index (VIX) is near record lows but make its biggest jump in nearly 4 weeks today. With all of the threats to market stability covered (above) I would expect the VIX to spike sharply in the near term.

NASDAQ - Recap and Outlook for Nov 28 2016 - FIVE

Looking ahead to tomorrow, we have the Euro-area Economic Conditions being released (Tues.) as well as the G.D.P. and P.C.E. figures out of the United States of America.

Later in the week, the Nonfarm Payrolls (shown above) could significantly move markets. The consensus estimate is for a gain of 180,000 jobs with the Unemployment Rate remaining at 4.9%.

NASDAQ - Recap and Outlook for Nov 28 2016 - SIX

The three biggest gainers on the Nasdaq today were: PhaseRx Inc. (PZRX) up +$1.690 (+149.56%) higher to $2.820, Sysorex Global (SYRX) up +$0.130 (+72.22%) higher to $0.310, and Prism Technologies Group Inc. (PRZM) up +$0.140 (+66.67%) higher to $0.350.

ESSA Pharma Inc. (EPIX) soared +0.580 (+30.85%) higher to $2.460 today. Last week, the company secured a U.S. $10 million term loan from Silicon Valley Bank.

The three biggest decliners today were: Fuwei Films Holdings Co Ltd. (FFHL) down -$0.1305 (-19.44%) lower to $0.5408, Skyline Medical Inc. (SKLN) down -$0.805 (-18.57%) lower to $3.530, and Towerstream Corp. (TWER) down -$0.0726 (-16.59%) lower to $0.3650.

Investors will be watching Inc. (AMZN) comments regarding sales demand over the holiday. Shares of the company, which tends to underperform the S&P 500 and retail ETFs in the month of December lost -$13.600 (-1.74%) lower to $766.770.

Robert Patyk has 15 years’ experience trading stocks, options, commodities, futures options, & currencies. At age 17 he won first place in an international stock trading competition. Robert predicted the market crash of 2008 two years early. He is a contrarian, top-down macro trader achieving high returns by studying geo-politics, fundamentals, and technical indicators.