Analysis and Opinion »

Nasdaq Poised to Rebound as Volatility Tests New Lows

David Becker
Share on StockTwits
Published on

Even though the Nasdaq is underperforming the other broader markets with the exception of the Russell 2000, the index is getting interesting because the bigger trend is up and the Bollinger Bands have narrowed. In Early March, the Nasdaq hit a new high and has yet to break its February low. The index tested this low in mid-April, but ultimately held with a bounce back above 4000.

The Nasdaq has since consolidated and volatility has contracted, which means the index may be setting up for a volatility expansion. Notice that the Bollinger Band Width indicator moved to 3% and is at the low end of its eight-month range. The Nasdaq itself is stuck between support in the 4000-4050 area and resistance in the 4150-4180 area. Chartists should watch these two zones for the next breakout signal.

The Bollinger band width is a derivative of the Bollinger bands, both created by John Bollinger. The Bollinger bandwidth subtracts the Bollinger band high (2-standard deviations above the 20-day moving average) from the Bollinger band low (2-standard deviations below the 20-day moving average), and creates an index that measures historical volatility. As the index climbs, historical volatility is climbing and as is declines, historical volatility is decreasing.

The Nasdaq held support near the Bollinger band low and with historical volatility in the lower end of the 6-month range the technology index is poised to see increasing volatility.

Google (NASDAQ:GOOG) bounces off its 200-day moving average and with Apple (NASDAQ:AAPL) touching new 52-week highs on Monday, the technology index is poised to see higher prices. Google had been under pressure until Monday, declining nearly 20% since hitting a high in early March. The rebound in this stock could be a strong catalyst that moves the composite back to new highs.

Share on StockTwits