Searching For Resistance

Emerging markets around the world have pushed to higher and higher record levels. They're now being joined by their more mature cousins - such as DJI, S&P 500, and DAX.

But with so many markets in uncharted territory, it makes it hard for the technical analyst to know just how far a rally might run. Where will the next level of resistance be that results in a significant pull-back?

Luckily there are two well-known key markets that remain well below their all-time highs and may contain some hints at where the next level of resistance lies that could lead to a pull-back. They are:

* NASDAQ 100 (NDX) has rallied from a 2002 low of 794 to near 2030 - but it is still well below its record year 2000 high near 4800.

* The Japan market reminds us how very long-term a slide from great heights can be (take note re NASDAQ 100). The NI225 - Nikkei 225 Index - peaked way back in 1989 at 38,957 before sliding for fourteen years to a low of 7604 in 2003. At 18,220 today it is over double the low point, but still less than halfway back to that record high set so many years ago.

Starting with the Nikkei 225, the next strong resistance band should be in the 19,500 - 21,000 range, with any push over 20,000 likely to be brief and lead to a strong pull-back.

That slide from a high of 38,957 to a low of 7604 will be 50% retraced at 23280. So after a serious pull-back from the 19,500 - 21,000 range, a further push to over 23,000 is possible - just don't expect to get there in a straight line!

Meanwhile, NDX will have retraced 50% of its decline at 2800, about 38% above todays 2030 level. It also has strong resistance much nearer at hand - at the 2080 level. If it pushes passed this level then the next resistance point is near the top of the trading channel at 2191.

So the answer to where the next level of resistance lies may be as close as +2.5% (NDX) or as far as +9.8% (NI225) - the point is that no market climbs higher in a straight line, even when in new territory, so these are two points where we should be on high alert.

By: Murray Nickel

Murray Nickel is a mathematician, statistician, and professional trader. He offers a free trial of trading signals for market indices and index ETFs, spot Forex, and spot Gold. He also mentors traders aiming to succeed at trading global markets.
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