The Dow Jones Industrial Average hit 16,000 last Friday, and the S&P 500 hit 1800. Not to be outdone, the Nasdaq Composite hit its own big, round number, scratching 4000 during Monday’s intraday trading before falling to close below it. The Nasdaq was fighting above the 4000 level again as of midday Tuesday.
While it’s well understood that big, round numbers for major indices offer a level of attraction (until possibly rejected), to gain a little more perspective of the relative importance of any major level, let’s zoom out on the charts.
To see the real big picture, let’s first look at a 40-year chart of the Nasdaq Composite.
The Nasdaq rose sharply into early 2000, but with the onset of what in retrospect became the lost decade-and-a-half, the sideways chop meant “party over” for now. The key takeaway from this chart is the higher low from February 2009, which led the Nasdaq to break to higher multiyear highs in ensuing years.
All in all, the Nasdaq remains in a long-term consolidation phase, but looks to be on track to retest its all-time highs closer to the 5000 area.
Looking at the Nasdaq Composite from its all-time highs in 2000, note that the index has now retraced well beyond the 61.8% mark. This line — which is important to those following the Fibonacci retracements — often is considered the last line of resistance, which in this case now essentially opens the gates for a move back toward the 5000 area. That’s roughly 25% higher from current levels, and could occur over the next two years or so.
In summary, even though the Nasdaq is currently displaying a steep slope thanks to its sharp rally in recent months, it’s trading in a constructive long-term pattern that could bring about a retest and an eventual push through all-time highs in a roughly two-year span.
Investors can thus take comfort in the fact that the longer-term trend is in their favor.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.