Chart watchers may be getting anxious as the Nasdaq, along with the benchmark-related exchange traded fund, form a potential trend-reversing pattern.
Ahead of the corporate earnings season angst, traders are watching a negative technical formation building in the Nasdaq Composite Index, reports Patti Domm for CNBC.
The index is forming a bearish head-and-shoulder pattern, which could signal a potential reversal in the bull market. A head-and-shoulder formation reflects a market where it initially rises to a peak and declines; then, the price rises above its former peak and shows another decline; lastly, the price strengthens but not as high as the second peak and dips once more. The first and second peaks are seen as the shoulder with the middle high peak as the head.
The Nasdaq Composite Index is currently showing a potential head-and-shoulder formation with the March 2 and April 10 peaks as its shoulders and March 20 high as the head.
Since its most recent peak on April 10, the PowerShares QQQ (NasdaqGM: QQQ), which tracks the Nasdaq-100, has dipped 0.6%.
“If the pattern follows, it will go down and test the starting point on the first shoulder,” said Justin Walters, co-founder of Bespoke. “There’s no real guidance into how much it will be fall.”
However, the Nasdaq Composite would have to decline to about 4,850 to fully form its head-and-shoulder pattern. The index was hovering around 4,977 Wednesday.