NASDAQ Forms Bullish Consolidation

06/23/05 08:55:23 AM

by Arthur Hill

NASDAQ has traded flat in June, and this consolidation looks like a bullish continuation pattern--or two.

Security: $COMPQ
Position: Accumulate

After a sharp advance, securities require a period of rest to prepare for the next move. This rest period comes in the form of a consolidation or trading range. This provides a chance to digest recent gains and alleviate overbought conditions. On the 60-minute NASDAQ chart (Figure 1), the index has consolidated and sports two bullish patterns: a head-and-shoulders and a cup-with-handle.

The head-and-shoulders formed during June with the left shoulder early on, the head mid-month and the right shoulder over the last few days. Neckline resistance is set at 2100 and a move above this level would signal a continuation higher.

Figure 1: NASDAQ 60-minute chart

Graphic provided by: MetaStock.

Graphic provided by: Data eSignal.

The cup-with-handle pattern shares 2/3 of the head-and-shoulders structure. The head marks the bottom of the bowl and the right shoulder forms the handle. As with the head-and-shoulders pattern, a move above 2100 would signal a continuation higher.

Resistance at 2100 marks the neckline of the head-and-shoulders and rim of the cup-with-handle. As noted, this level holds the key. A breakout would project further strength to around 2150. The distance from the neckline to the top of the head is added to the breakout for a projection. A move below the shoulder or handle low (2076) would call this bullish pattern into question.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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