The NASDAQ 100 is dominated by Apple. At 18% of the index, the Apple earnings report last night had a huge effect on the chart. From the end of March through yesterday, the index fell from 2795 to 2625, driven largely by a 14% drop in Apple. But after the massive earnings number reported last night, the index surged higher at the open and created what we are calling the Apple Island. (I smell a reality show!)
The island is a chart pattern where there’s a gap on both sides of the index/stock (which leaves prices on an ‘island’). It is generally considered a reversal pattern found at the end of a price move. The chart to the right shows the NASDAQ 100 — I have marked the island formation with a red rectangle. (Technically, the island formation in this case is two days of trading). This is a nice bullish reversal pattern.
And that’s not the only bullish sign on the chart — there are two false breakdowns there as well. The first is the sell off below the 50 Day Moving Average, as marked by the yellow line. Upon completion of the island formation, the index surged right back above the 50 Day Moving Average.
The second false breakdown is indicated by the green line, which marks the gap at 2650 from the beginning of March. Gaps are also viewed as support/resistance areas for an index or stock. Two weeks ago the index traded to 2650 before a short rally, and the island formation found resistance at that level as well. Trading back above 2650 is a good sign and also provides a nice support zone for this market.