Nasdaq 100: Tech Stocks Fall in Premarket as US Indices React to Iran Tensions

Stock Futures Fall as U.S. Forces Seize Iranian Cargo Ship

Stock futures fell early Monday as tensions between the United States and Iran grew after President Donald Trump said U.S. forces fired on and seized an Iranian-flagged cargo ship in the Gulf of Oman. Dow futures dropped 358 points, while S&P 500 and Nasdaq-100 futures also moved lower.

President Trump said the ship was under U.S. sanctions and warned of further action if Iran does not agree to a deal. Iran had already refused new peace talks. Oil prices jumped, with West Texas Intermediate rising 8% and Brent crude gaining 6%, raising concerns about global supply.

Technical Outlook

June E-mini Nasdaq-100 Index futures are lower in Monday’s pre-market session, and back below the previous all-time high at 26754.75. The new record high was reached on Friday at 26884.75. Traders did find some intraday support at the January 28 main top at 26580.50, actually reaching an intraday low at 26535.00.

The chart pattern is simple and if you recall, last Monday’s trading session started the same way. Taking out 26884.75 will reaffirm the uptrend with no visible resistance in sight. However, since we are in the midst of an historic vertical rally, we’re not worried about picking a top. Let someone else do that. We’re looking for a chart pattern that will signal a shift in sentiment and momentum, and that pattern will be a closing price reversal top.

What a Closing Price Reversal Top Means

The closing price reversal top doesn’t signal a change in trend, but if confirmed, it could lead to the start of a 2 to 3 day, 50% to 61.8% correction. Sometimes, it takes place just to alleviate some of the upside pressure. Serving as an excuse for trend traders to book profits before the change in trend price is hit, which is way down at 24904.50.

How Traders Are Positioned

So while some will use the formation to book profits, others will try to short it. Knowing that they are trading counter-trend, they’ll set their initial target zone at 25894.75 to 25661.00. Other, more aggressive traders, will read the price action and order flow on that first move.

If they see the overwhelming presence of sellers, they may choose to play for an even greater break into the 200-day moving average at 25158.48 and the 50-day moving average at 24,985.35. Another target is 50% to 61.8% of the entire rally from the March 31 bottom to the April 17 high. This target area is 24923.25 to 24460.25.

Keep in mind that this is daily chart analysis and a forecast. The intraday day charts should develop a similar topping pattern, and they all share the same exit, the 26884.75 record high.

Old Tops as Potential Traps

Now there’s an old adage that old tops become new bottoms, but that’s for longer-term plays. When dealing with them over the short-term, the trader has to think of them as potential traps. For example, if a trader bought the breakout over the former top at 26754.75 and rode it up to the new record high at 26884.75 then back down to the current price at 26666.50, then he’s trapped if he held on.

If sellers come in later when the session is more active and decide to defend the record high. This may spook some of the weaker longs into dumping their positions and this is how tops form.

The bulls want to see a continuation of the rally, while aggressive short-sellers are looking for pressure points that could create a cascade to the downside.

More Information in our Economic Calendar.