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The Nasdaq 100 Index is currently in the middle of a rising channel formation. This is occuring, however, under MACD and RSI divergence which indicates an imbalance in the uptrend; the value on RSI and MACD in June is higher than the short- term peak in July and the peak and current all-time high a couple of days ago.
Trend and strength indicators are not fully supporting the trend. Divergence is a warning sign that a correction is due but it should be noted that imbalances in the financial markets can go on for quite some time and a new all-time high is not impossible. It cannot go on for too long, though.
Volume is not supporting the higher levels either since they are flat at best but a closer look reveals that volume during up days is lower than down days, a sign of buying fatigue.
I will maintain my cautious bullish view as long as the Index stays above the lower rising trendline and has not shown me a top and reversal pattern. Be cautious, though, as we are now in September which is a month a lot of fund managers use to clean house – i.e. get rid of poorly performing stocks before the last quarter.
That in and of itself can cause some volatility.
Note that the divergences are much more pronounced on the weekly chart.
During the roaring market in January, RSI topped out at 83.56 while the current RSI value is around 68 – massive divergence. It's the same with the MACD indicator. We have to go back to the 1990s during the dot-com bubble to see RSI values above 80.
During the past years, the Nasdaq 100 seems to have formed a rising wedge-like pattern. If it is indeed a wedge, it is very close to breakout. A bearish break could take the Index down to at least 7,000 but potentially down to the lowest level in the wedge around 6,500
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