E-mini NASDAQ-100 Index (NQ) Futures Analysis – May 9, 2013

After reaching a multi-year high overnight, the June E-mini NASDAQ-100 is posting a slight decline shortly ahead of the cash market opening. Although a change in trend is not imminent, the chart pattern suggests the market is ripe for a near-term correction.

Without any major economic reports today, investors have very little news with which to react.  This could lead to complacency which often triggers the start of a meaningful correction. Investors begin to think that the trend will continue since there is nothing standing in the way then they hit the wall of worry which makes them nervous. This often leads to uncertainty and an overreaction to the slightest negative news.

We could be looking at this scenario today. Although the market has been pushing new highs this week, the rallies seem to be labored. On Tuesday, the market posted a daily closing price reversal top which was never confirmed, but it may have been the first sign that the selling is greater than the buying at current price levels.

Today, the index made a higher-high overnight and is now trading lower. This could be an early indication that a short-term top is forming. If a closing price reversal top forms and is confirmed on Friday then look for the start of a 2 to 3 day correction. The first downside objective will be 2845.75.

The Gann angles suggest that there is plenty of room to the downside. Overnight, the June E-mini NASDAQ crossed to the weak side of a steep uptrending Gann angle at 2964.00. Sustaining a move under this angle could trigger a substantial break with the angle at 2844.00 the next potential downside target.

Without any major economic reports today, a shift in investor sentiment could turn the index lower. Long investors are looking for an excuse to lock in profits while those are the sidelines are waiting for more favorable prices. This could be the formula which leads to the start of a meaningful correction over the near-term.