Today’s bearish reversal is the first minor skirmish following the recent selloff and attempt at a bottom.
In looking at a chart of NASDAQ composite, the obvious ultimate support level is the 2202 bottom that was put in on Wednesday. Almost as important, however, is the green line at about 2320-2325 that I have added to the 30 minute chart below. For the moment at least, 2320 is the critical line in the sand. This line highlights important gaps on Wednesday and Thursday that served as resistance on both days, as the bottom was forming. Now the 2320-2325 area appears to have flipped from resistance to support in the face of today’s downturn.
It is way too early to draw any conclusions about the bottom earlier in the week, but there is a possibility that we are seeing the first higher low, which would move the battlefield to the 2220-2410 arena – the full extent of today’s range. About the only thing I can say with confidence at this point is that the game is afoot. How well the bulls defend 2320 should go a long way to determining whether this week’s action will turn out to be an important bottom. If 2320 falls, I suspect it will be very difficult to rally sufficient support to make 2202 hold.