Knock Knock

NASDAQ 05/09/12

Currently the NASDAQ has pulled back 6% in an orderly fashion.  If the current move is a 4%-7% pullback then a bottoming formation here would be in keeping with this belief. If it becomes deeper, then the next logical price point to pay attention to is the 2810 zone --a 10% pullback.  Of note is the increased volume here which could go either way depending upon how the rest of this pattern plays out.  If price bases here then there is volume supporting the lows, however if price breaks further then the interpretation become further distribution while the index churned.

The topping patterns that the indexes are forming can not be validated until there is an actual break down and thus far it still continues to be a range, albeit with an increasingly bearish bias.  Over the past ten sessions selling has picked up slightly although not significantly and the underlying breadth numbers are modestly bearish but not extreme enough to indicate this is the actual floor.  It does feel like a pins and needles trading environment and there is a lot of anticipation building about a potential break down here so the only thing to do is allow time to play this out.