Technical analysis: Nasdaq break-out points to higher price targets

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The Nasdaq Composite index gave a significant break-out two weeks ago and is pointing to two higher price targets.

This is bullish for the US stock market as a whole, as shown on the chart.

Nasdaq: Higher targets

Recommendation: Buy pullbacks

Trend: Short term up. Medium term sideways. Long term up.

(Daily)

- The Nasdaq broke out above line 2 recently, to confirm a short-term inverse head and shoulders (labelled S-H-S in red). But this has also turned a large “potential” head and shoulders (H/Sh) from January, into a head and shoulders continuation pattern (bullish).

- Its short-term stochastic oscillator (on top) is overbought in the very short term.

- Buy the Nasdaq, or other US benchmarks, on a minor pullback, for example a two- to three-day pullback. Pullbacks will remain buyable until the higher target is reached.

- The first target for the Nasdaq is 4 430 points, based on the inverse head and shoulders. The second target (target 2) is 4 620. (It was trading at 4 321 at the time of writing).

- The stop-loss is a close below line 2 (4 180). From target 1 (4 430) move the stop to below 4 250 points.

* Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author or to attend his courses, go to www.themarket.co.za.


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