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Watch these key Nasdaq 100 levels as charts signal fading upside momentum

The central theses

  • The technology-heavy Nasdaq 100 index continued to hit record highs after rising nearly 8% in the second quarter, as Wall Street's continued enthusiasm for AI continued to boost stocks related to the technology.
  • A declining trading volume and a divergence between the price and the Relative Strength Index indicate a weakening buying pressure.
  • The Nasdaq 100 index could find support at key levels including 19,500, 18,900, 18,400 and 16,974.
  • A bar overlay pattern that takes the index's trend movement between October last year and March this year and adds it to April's swing low predicts a price target of around 22,000.

The technology-heavy Nasdaq 100 index continued to hit record highs after rising nearly 8% in the second quarter, as Wall Street's unabated enthusiasm for artificial intelligence (AI) continued to boost the price of stocks related to the technology.

Below, we use technical analysis to identify the key levels to watch for in Q3.

Indicators signal easing buying pressure

Since hitting a low midway between the 50- and 200-day moving averages (MA) in mid-April, the index has continued to rise, reaching a record close on Wednesday.

Although the Nasdaq is making new highs, several indicators on the chart suggest fading momentum. First, trading volume, while still above longer-term averages, has declined in recent days – possibly due to the shortened trading week. Second, while the price has climbed to a higher high this week, the relative strength index (RSI) has made a flatter high, indicating a bearish divergence, which in turn implies fading buying pressure.

Monitor these key levels during retracing

During periods of decline or profit-taking, investors should keep a close eye on these key areas.

An initial decline could see the price revisit the 19,500 mark, an area on the chart that may find support from last week's low.

If the index breaks below this level, it could attract buyers near a horizontal line connecting a price range between late May and early June around 18,900. This area could also find support from the rising 50-day MA.

A further decline could lead to a retest of the key 18,400 region, an area where buyers are likely to be found near a trend line connecting several price points around the index's previous all-time high (ATH), which appears to have turned from a resistance area into a support area.

Finally, a broader correction in tech stocks could result in a decline to April lows of 16,974, which are currently just below the closely watched 200-day MA. Such a decline would represent a loss of about 16% from Wednesday's close of 20,187.

Potential longer-term upside price target

For those looking for a longer-term upside price target, we can speculate by using a bar overlay pattern that takes the index's trending movement between October 2023 and March of this year and adds it to the April swing low. This projects an approximate price target of around 22,000.

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At the time of writing, the author does not own any of the securities mentioned above.