Is the Nasdaq 100 ready to correct?

During the January 24 edition of Saxo's Morning Call, I talked about a possible top and reversal pattern forming in the tech-heavy Nasdaq 100 index. A stream of strong earnings from tech companies like Nvidia, AMD and Intel over the past couple of days, however, are pushing Nasdaq 100 futures higher ahead of today’s opening bell.

Where does that leave the top pattern formation?

Over the course of the days (January 17, 18 and 22), the Nasdaq 100 formed an Doji Evening-like pattern (see the blue circle on the chart below) which is considered a top and reversal pattern. The Doji candle from January 18 got within a couple of points of the 0.764 retracement of the December sell-off before being rejected. The Relative Strength Index was also rejected at the 60 threshold – i.e. there is still some bearish sentiment.

Doji Evening is a pattern you usually see after a longer uptrend; it would be an overstatement to call the bullish correction since end-December as a longer uptrend. Whether this is indeed the end of the bullish correction is still a bit too early to call. A break below 6,584 (the dashed line on the chart) would confirm the bearish reversal picture. A close above the Doji high at 6,816.25 would cancel the top reversal pattern, resulting in a resumption of the uptrend towards the 200 moving average at around 7,000.