The tech-heavy Nasdaq 100 (NDX) is forming a very bullish two year inverse head and shoulders bottoming pattern. The accompanying annotated graph illustrates all the important events since the financial crisis began in 2007. It is very healthy to see that this index has nearly repaired all the damage of 2008 and is perched just below the neckline of its large base. It is also important to note that April 2010’s highs correspond with the highs in June 2008 which form the neckline of this pattern. Technically, a new buy signal will be triggered if the NDX manages to trade above the neckline (2060) of this very large pattern. Until then, this market is extended and patience is paramount.
Fundamentally, the market is trading higher thanks to the ongoing global recovery, quantitative easing (QE 1 & 2), solid earnings, and a weaker dollar. As long as these factors remain at play, higher prices will likely follow. Trade accordingly.