The Nasdaq 100 had one of its worst 4 week stretches in history from late Feb - mid March 2020. We nearly tagged the weekly 200 ma, which on my chart are the circles. Note they recently turned red from green, warning of descending confidence from longer term investors. Also note the last time we had a string of red circles was the December 2018 bottom. Back then, we had a more classic diagonal bearish move with a retracement to the weekly 50 moving average (green/red line), a test above it, and then finally found support near 6000, developing a trendline that began years before. The CCMI (a trend momentum indicator) had dropped into the oversold zone on that initial bearish move (before the retracement to the 50ma ) and then developed bullish divergence, rising as the price fell to the lows of 2018. We didn't see that weekly CCMI become overbought until January of 2020, where the Nasdaq produced a blow-off top very typical of wave 54" trend finales. It even gave a 2-week long "rest-after-battle" pattern before the final (very low volume) short-covering and FOMO rally just as the world got word of the Covid-19 virus in China.
The drop in 2020 has been nothing short of historic. Price dropped right through the weekly 50 ma, and the CCMI never even had a single week to breathe. Typically, these "impulse corrections" are followed by a 30-50% retracement, and then a C wave lower, often about the same size as the first correction. This is what should be expected...that we have seen only the first half of the larger bearish move, and the technicals would support this, especially if we tag the 50 moving average this week but fail to close above it similar to the last week of November 2018, just before the Chinese tariffs hit.
But what if that "expected" move doesn't occur...what if this bear market IS actually different. What would likely occur is something similar to the first half of 2019, which is copied and projected into the first half of 2020 on the chart. A close ABOVE the weekly 50 moving average, which sits above 2 critical trendlines (white) that bulls MUST close a weekly candle above to re-establish the previous bullish trend, will force all those who already exited (or who are still short) to suddenly question whether this "bear market" is actually a bear at all. If the bearish trade of the century is INVALIDATED....guess what side every trader in the world will want to be on at once....
The most profitable trades SHOULD feel uncomfortable to enter or hold...because for trades to be profitable, the majority of those in the trade before you need to be WRONG. Accumulating a long position at any sign of strength in the next few days, with a plan to exit if that is not followed up with a close above the weekly 50 ma resistance (or worse yet, a test above ~8000 and fail below by weeks end) could be the last chance to take advantage of this dip. It will be psychologically challenging to buy into a global pandemic and economic shutdown...but if we DO bounce back, there will be a lot of hungry investors ready to join in, and happy to pay much more for that same position....and if I'm wrong, I take 1 loss and join the bears for the rest of the ride lower.
The drop in 2020 has been nothing short of historic. Price dropped right through the weekly 50 ma, and the CCMI never even had a single week to breathe. Typically, these "impulse corrections" are followed by a 30-50% retracement, and then a C wave lower, often about the same size as the first correction. This is what should be expected...that we have seen only the first half of the larger bearish move, and the technicals would support this, especially if we tag the 50 moving average this week but fail to close above it similar to the last week of November 2018, just before the Chinese tariffs hit.
But what if that "expected" move doesn't occur...what if this bear market IS actually different. What would likely occur is something similar to the first half of 2019, which is copied and projected into the first half of 2020 on the chart. A close ABOVE the weekly 50 moving average, which sits above 2 critical trendlines (white) that bulls MUST close a weekly candle above to re-establish the previous bullish trend, will force all those who already exited (or who are still short) to suddenly question whether this "bear market" is actually a bear at all. If the bearish trade of the century is INVALIDATED....guess what side every trader in the world will want to be on at once....
The most profitable trades SHOULD feel uncomfortable to enter or hold...because for trades to be profitable, the majority of those in the trade before you need to be WRONG. Accumulating a long position at any sign of strength in the next few days, with a plan to exit if that is not followed up with a close above the weekly 50 ma resistance (or worse yet, a test above ~8000 and fail below by weeks end) could be the last chance to take advantage of this dip. It will be psychologically challenging to buy into a global pandemic and economic shutdown...but if we DO bounce back, there will be a lot of hungry investors ready to join in, and happy to pay much more for that same position....and if I'm wrong, I take 1 loss and join the bears for the rest of the ride lower.