Witness The Wizardry, As The Bears Close in On The Nasdaq! (QQQ)
Hi friends! Welcome to this update analysis on the Nasdaq, via the QQQ ETF! Let's get right to it! Looking at the daily chart, you can see that the Qs have been running into a bit of trouble, after rallying for a historically long period of time inside of this black uptrend channel. I'd like to first draw your attention to the 50 EMA (in orange.) You can see that it was held several times (green arrows) as price continued to climb in a healthy way. However, major violations of the 50 EMA have recently materialized, reducing it as a viable support level. On 3/27 we saw a major reversal from the 50 EMA, which produced a massive bearish engulfing candle. Additionally, you can see that the daily volatility is much greater, producing significantly larger candles than what was seen earlier in the channel. This increased volatility is indicative of an underlying shift in investor confidence. You can see that, as the market climbed, the gains were faded in a rapid and brutal way. From my perspective, this looks like topping action. This bull run has gone on for an incredibly long period of time, and the investors who've made money are now looking to take some of those gains off of the table, or otherwise protect their capital.
Looking at the action around the all time high, we can see that there are two primary arc-type structures. This appears to be the development of a head and shoulders pattern, where the right shoulder has not yet been formed. Noticing this, I've taken the liberty of using the technicals to project the forward movement of the price action, assuming that a right shoulder will be created.
As you can see, I have drawn what could be a new downtrend channel (in pink dashes) that the QQQ is entering. If you look at the lower pink dashed trendline, you can see that it was touched on 12/29 and 2/9. So there are two points of contact that could generate this channel. Using some forward thinking, I have copied that trendline to the all time high, in order to visualize how this channel could look. Technically, you need at least two touches of a trendline for it to exist, so there currently is no downtrend channel. However, that doesn't mean that we aren't in the midst of forming one. I like to look at charts this way, when it's necessary, to determine the confines of price movement. Interestingly, you can see that there is a faded projection of the right shoulder, of this proposed head and shoulders pattern, that could extend up to make perfect contact with the top of this currently undefined channel. However, I'm not so sure that is the most likely course of action. Based on the look of the S&P, and other indicies in the market, it appears as though the time before a breakdown may be limited. So, I favor the development of a more shallow right shoulder, that would find solid resistance at the 50 EMA to form the peak. Either way, I think the technical indications are clear that this market is topping out. I realize that these are bold statements to be making while the Nasdaq still gyrates inside of this historic uptrend channel. However, this action looks way too toppy to me.
Once we do break down, there are several support levels that I've highlighted on the chart. Interestingly, the first two support levels are gap fills, that coincide almost perfectly with the 38.2% retrace, and the 50% retrace. Furthermore, the height of the head and shoulders suggests a corrective potential that could send QQQ back to the bottom of the downtrend channel. You can see that such a move, if it were produced rapidly enough, could converge with the second gap fill, the bottom of the downtrend channel, and the 50% retrace. That would be a violent breakdown for this market, but the technical indications show that such a move is feasible. Personally, I'm looking for a move higher, that produces the peak of the right shoulder, where I plan to short this market, with a downside target of around 140.
Looking at the action around the all time high, we can see that there are two primary arc-type structures. This appears to be the development of a head and shoulders pattern, where the right shoulder has not yet been formed. Noticing this, I've taken the liberty of using the technicals to project the forward movement of the price action, assuming that a right shoulder will be created.
As you can see, I have drawn what could be a new downtrend channel (in pink dashes) that the QQQ is entering. If you look at the lower pink dashed trendline, you can see that it was touched on 12/29 and 2/9. So there are two points of contact that could generate this channel. Using some forward thinking, I have copied that trendline to the all time high, in order to visualize how this channel could look. Technically, you need at least two touches of a trendline for it to exist, so there currently is no downtrend channel. However, that doesn't mean that we aren't in the midst of forming one. I like to look at charts this way, when it's necessary, to determine the confines of price movement. Interestingly, you can see that there is a faded projection of the right shoulder, of this proposed head and shoulders pattern, that could extend up to make perfect contact with the top of this currently undefined channel. However, I'm not so sure that is the most likely course of action. Based on the look of the S&P, and other indicies in the market, it appears as though the time before a breakdown may be limited. So, I favor the development of a more shallow right shoulder, that would find solid resistance at the 50 EMA to form the peak. Either way, I think the technical indications are clear that this market is topping out. I realize that these are bold statements to be making while the Nasdaq still gyrates inside of this historic uptrend channel. However, this action looks way too toppy to me.
Once we do break down, there are several support levels that I've highlighted on the chart. Interestingly, the first two support levels are gap fills, that coincide almost perfectly with the 38.2% retrace, and the 50% retrace. Furthermore, the height of the head and shoulders suggests a corrective potential that could send QQQ back to the bottom of the downtrend channel. You can see that such a move, if it were produced rapidly enough, could converge with the second gap fill, the bottom of the downtrend channel, and the 50% retrace. That would be a violent breakdown for this market, but the technical indications show that such a move is feasible. Personally, I'm looking for a move higher, that produces the peak of the right shoulder, where I plan to short this market, with a downside target of around 140.
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! I'm outta here!
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-Magic loves you-
-JD-