📈NASDAQ 100 - A major shakeout of weak hands incoming
I have drawn an easy to understand technical chart of the NASDAQ100, highlighting the major support and resistance areas from February to July, and two points of bearish divergence using a daily chart (each bar is 1 day of trading on the NASDAQ).
Bearish divergence is one of the most popular tools that traders utilise to time market reversals, this type of divergence forms on a chart when price prints a higher high, but the indicator you are using fails to follow suit (I’m using RSI).
A divergence in a market is an early signal that an existing trend is likely to reverse and/or consolidate.
Bearish divergence #1 (purple lines) shows price climbing from January 22nd – 19th February with RSI lagging, what followed was a massive price collapse down to 6,900 which turned into some very nice support.
A 30.5% correction.
Bearish divergence #2 is currently in play from June 10th to current day, price is moving higher with the momentum indicator lagging behind.
History tells us that when we see this in play - we can expect a correction or trend reversal, these situations can take days, weeks or months to play out.
Price can also consolidate which means it moves sideways for a period of time instead of moving lower.
If there was to be a correction, the first level of support is the 9,800 level which was the old ATH and is now acting as support as shown in the chart. That would be a correction of 10% from the current ATH.
The second level of support is the 8,850~ level, which again I have shown in the chart to be an important level, as it has been used as support and resistance.
This would be a correction of 18%.
The third level of support is the march low, this would be a correction of 35%.
The NASDAQ can still move higher from here, if it does go higher I’d love to see the RSI follow through to give it more confidence in the sustainability of this rally.
Price moving sideways for the next month or moving lower to ATH support would also be a healthy sign for the NASDAQ before moving higher.
If the NASDAQ keeps pushing higher like it has in the past few weeks with lack of RSI follow through, this gives greater weight to a correction coming into play, the higher it goes up, the harder it will fall.
What makes me worried is that I seen this bearish divergence in gold, oil, S&P, and many other markers.
This makes me think we are about to have a major shakeout of weak hands who just joined the investment party a few months ago, and may be the last great dip buying opportunity before the next run.
Let's see!
Bearish divergence is one of the most popular tools that traders utilise to time market reversals, this type of divergence forms on a chart when price prints a higher high, but the indicator you are using fails to follow suit (I’m using RSI).
A divergence in a market is an early signal that an existing trend is likely to reverse and/or consolidate.
Bearish divergence #1 (purple lines) shows price climbing from January 22nd – 19th February with RSI lagging, what followed was a massive price collapse down to 6,900 which turned into some very nice support.
A 30.5% correction.
Bearish divergence #2 is currently in play from June 10th to current day, price is moving higher with the momentum indicator lagging behind.
History tells us that when we see this in play - we can expect a correction or trend reversal, these situations can take days, weeks or months to play out.
Price can also consolidate which means it moves sideways for a period of time instead of moving lower.
If there was to be a correction, the first level of support is the 9,800 level which was the old ATH and is now acting as support as shown in the chart. That would be a correction of 10% from the current ATH.
The second level of support is the 8,850~ level, which again I have shown in the chart to be an important level, as it has been used as support and resistance.
This would be a correction of 18%.
The third level of support is the march low, this would be a correction of 35%.
The NASDAQ can still move higher from here, if it does go higher I’d love to see the RSI follow through to give it more confidence in the sustainability of this rally.
Price moving sideways for the next month or moving lower to ATH support would also be a healthy sign for the NASDAQ before moving higher.
If the NASDAQ keeps pushing higher like it has in the past few weeks with lack of RSI follow through, this gives greater weight to a correction coming into play, the higher it goes up, the harder it will fall.
What makes me worried is that I seen this bearish divergence in gold, oil, S&P, and many other markers.
This makes me think we are about to have a major shakeout of weak hands who just joined the investment party a few months ago, and may be the last great dip buying opportunity before the next run.
Let's see!