« Update: Broadening Formation on Nasdaq Composite »

The Nasdaq Composite daily chart - specifically a broadening formation (megaphone top) on the stock index chart - became our 'Chart in focus', last Friday.

At the time, the formation was just shaping up. Prices hadn't touched the upper line of the potential formation and found resistance from the same. Now, a week later, the index has touced that line and has fallen 70 points within 3-4 days.

Nasdaq Composite daily chart, depicting potential megaphone top

A megaphone top is complete only once the lower line is broken. That line is still a good 125 points away. So it'll take some doing, on the part of the bears. But if they're able to take out the falling support line that forms the base of this formation, we could see an eventual drop to the 1750-level or so; this target is derived by projecting downwards the height of the pattern, from the falling support level.

Once again, we're not saying that our bias is bearish at this point. In fact, we closed a large number of winning long stock and bullish options picks over the past few days and changed our bias from bullish to neutral, yesterday. The chart above is, as stated earlier, our 'chart in focus' and the development of this potentially deadly formation for the bulls over the short-to-medium term will determine our bias over the intervening period.