Diamonds at NASDAQ 100 highs

Today is the day before the final FOMC meeting of 2021, and although it seems certain that committee members will vote to increase the pace of tapering bond purchases due to higher inflation, the question remains: “How much will they increase the pace of tapering?”. Additionally, what will members’ forecasts for inflation and growth look like, as well as the dot plot? Will the Omicron variant of the coronavirus play a role in the Feds guidance? Don’t forget as well that the trading year is coming to an end. Large funds who made money this year on stock index advances seem to be taking profits off the table due to the uncertainties surrounding the FOMC outcome and illiquid markets that usually come with year end.

What will inflation look like in 2022? See our inflation outlook!

The NASDAQ 100 is leading the pack on the selloff from the attempted recent bounce back towards all-time highs. The tech heavy stock index made all-time highs on November 22^nd, before pulling back to the 50-Day Moving Average near 15800. Price then bounced and tried to take out the all-time highs, but sellers overtook buyers near 16413, hitting stops along the way as the tech heavy index sold off.

See our 2022 stock indices outlook

In doing so, the NASDAQ 100 is forming a beautiful “Diamond”, which is considered a reversal pattern. The target for the break of a diamond is the height of the pattern added to the breakdown point. In this case, it points towards the lows from early October and the 61.8% Fibonacci retracement from the lows of May 13^th to the recent all-time highs, near 14414.25. This is also near horizontal support from the lows in early October. The first support level ahead of the diamond target is at the 38.2% Fibonacci retracement from the same timeframe at 15313, which also confluences with an upward sloping trendline. Below there is horizontal support at 14996, the 50% retracement level at 14863.75 and the 200-Day Moving Average crosses right at the target, near 14624.

Source: Tradingview, Stone X

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If the NASDAQ 100 bounces, resistance is at Monday’s highs of 16413, which is also trendline resistance and then the all-time highs at 16767.50.

Nervousness ahead of the Fed and profit taking heading into year-end appear to be taking a toll on stock indices. In the NASDAQ 100, it appears that all-time highs and diamonds may not last forever!

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