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Technical Analysis Nd100 : 2016-10-13

First corporate reports fell short of expectations

US Q3 corporate earnings season is off to a rough start. The profits of medical tests producer Illumina disappointed investors and the company’s stocks plunged 25%. As a result, pharmaceuticals sector and Nasdaq 100 index slumped. Will it continue falling?

Dow Jones and S&P 500 indices also fell on weak quarterly earnings of Alcoa Inc. It reported worse-than-expected earnings which pushed its stocks almost 15% lower. Investors expect the total earnings of S&P 500 components to have declined by 0.7% in Q3 2016. Thus, negative trend in quarterly earnings may persist for 5th straight quarter. US December rate hike may become additional negative as it will raise credit burden on the US companies. Now the chances for the Fed rate hike are estimated at 71%. Meanwhile, US dollar strengthened which may affect US exporters. Nasdaq 100 index is being traded with Р/Е of 23 and looks overvalued. Economic data is anticipated in US on Friday: retail sales and consumer confidence index by Michigan University. Preliminary forecasts are positive in our opinion. It they happen to come true, this may limit stock market decline. Still, corporate earnings will weigh on the stocks.


On the daily chart ND100: D1 has approached the support of the uptrend. Further decline is possible in case of weak quarterly earnings of hi-tech companies and break down below the support line.

Parabolic is giving bearish signals.
Bollinger bands have narrowed which means lower volatility. They are slightly tilted down.
RSI is below 50 having formed negative divergence.
MACD is giving bearish signals.

The bearish momentum may develop in case Nasdaq 100 falls below the lower Parabolic signal, support of the rising trend and two last fractal lows at 4800. This level may serve the point of entry. The initial stop-loss may be placed above the upper Bollinger band and the historical index high at 4940. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 4940 without reaching the order at 4800, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis

Position Sell
Sell stop below 4800
Stop loss above 4940

Thursday, 13 Oct, 2016 / 1:47

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