Retest

thumb_nq_12-10_daily__4_12_2010_-_11_19_2010Quite a rally from the September breakout. NQ (NDX futures) easily marched past its April 26 highs (2057.25), resistance now turned support. As a general rule, SPX will follow in the tracks of NDX, a warning to traders to not get short until that target was reached (1219.80). We did make it up there on 11/4, with a slight higher high the next couple of days to trap longs, pushing NQ right up to 2198, just shy of the fateful December 2007 close. The pullback has been sharp, with NQ dropping to the 76.4% level of the rally off the July lows. This could play out in many ways, but the key factor will be how much of the excess bullish sentiment of the past few weeks can be negated in order to restore a decent wall of worry. Obviously, bears are hoping for an NDX retest of the April highs (2059, 2057 for futures) before the year plays out. The first warning sign would be an ES (SPX futures) loss of 1169.75, which has held twice last week. Right now, the immediate task at hand for bulls is to regain the NDX 20 dma on a closing basis (2144). This is still a strong bull market, and even though bulls are a little tired, bears are nervous, afraid to get squeezed one more time. Mind your step and don't get too greedy either way as we approach the end of the year.