Not only a doji, but a doji formed right on the post-Labor Day descent line (log scale), which many of us have been watching. That said, suggesting that the correction is or might be already over strikes me as premature. The last time the Nasdaq penetrated 2000 heading lower, it also futzed around before getting down to business. My take:
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Whether or not you consider the recent formation a true head and shoulders or a "continuation head and shoulders" or just a broken minor uptrend line (the white line, aka "the neckline"), the price action has so far followed a familiar pattern - 1) a bounce after fractional penetration, 2) a definitive close below, 3) a breakdown (yesterday). A snapback followed by a resumed, accelerating downtrend would also be business as usual.
Today's action - a doji - suggests that a bounce off the descent line (green) is more likely than not, perhaps up to the 50-day moving average (gray). Until and unless the level represented by the white line is re-mounted, then any upward move would have to be treated as a mere snapback (as above). By the same token, movement below today's low could initiate rapid deterioration.
Today's session was also a study in "gap support/ resistance": After an initial penetration of "gap support" (the gap between the 4-17 and 4-18 that marked the re-ascent over 2000), today's session re-entered the opening gap between yesterday's and today's sessions, and the entirety of the price movement thereafter took place within that gap. Re-ascending the broken neckline would require penetrating additional gap resistance (Wed. to Thu.)- but would therefore be all the more a bullish sign if accomplished.
The dotted yellow lines are Fibonacci levels measured from the rally's reaction low to its absolute top: They make a nice fit with other key price discoveries, with the bottom of the "breakaway" gap mentioned earlier fitting nicely into the critical lower level (ca. 1940), and presenting a nice immediate goal for further downward movement. As ever, there are alternative ways to plot such levels, and dramatic external events can make short work of reasonable-looking targets. Within the pictured scheme, a break below combined support ca. 1940 would suggest high probability of a test at least of the minor low (1700), perhaps of the absolute low (1619).
There is as yet no sign of relief on secondary indicators: The Chaikin Oscillator (a measure of accumulation-distribution), MACD, and DMI (with upticking directional momentum) all paint a bearish picture. |
