Nasdaq Shift in Momentum
Be it loved sectors or individual markets like Nasdaq, there is always a set process that needs to occur that creates the ultimate timing point for when that bull trend can end. For the fashionable sectors it begins with what have been daily chart based supports switching to resistances. We include fundamental observations around individual sector components, in what we call Good News Bad Action. The company’s results are good and beat expectations but the price goes down. This is typical behaviour in a crowded trade. Carnival (CCL) was a classic example last week as it beat by over 10% but went lower. The Blue arrows are our UFO pattern divergence that is a warning sign of lack of momentum up. It is more powerful if it occurs at a black or blue line as it did here.
Occasionally a stock has rallied so much that it triggers a Range Relativity extreme. This takes Multiple Time-frame support and resistance points from weekly charts up to annual and projects them on a daily chart. An extreme occurs when the shorter time-frames have extended beyond the higher ones and then triggered a reversal or slingshot move the other way by closing below the Black dash low at the end of the week. The different colours represent different time-frames
Black = weekly
Blue = Monthly
Pink = Quarterly
Brown = Semi Annual
Red = Annual
On Carnival a potential signal can come this week. It will be triggered because price is above its annual and semi annual target, whilst the pink quarterly is also above those targets. Finally the monthly blue has extended beyond the pink quarterly meaning that shorter time-frames have rallied far beyond the longer term targets. The final piece in the jigsaw is when the weekly black line is above the monthly as is the case this week. A signal will be triggered if we close below the weekly black line low at 65.87 on Friday. This would confirm the previous charts pattern divergence at resistance. This timing point is critical as we approach the end of the month, quarter and Semi Annual time frame, as those levels will reset next week.
Whilst a Range Relativity is a nice to have it is not essential. What is required for a topping process to conclude is the switching of higher time-frame Peak Energy or Expansion lines from support to resistance. These lines are marked as black and blue and are based on weekly and monthly charts respectively. Once this has occurred then any of the patterns such as Bear Cage, SlammDunk, Ufo or Time Continuation act as a timing trigger to place the trade.
The Nasdaq has been on a serious rip for months with only the daily based pink and red lines shifting above price in over a year. All this suddenly changed last week as the weekly line which had been unchanged for 13 months, switched to the top of the trend. This indicates a sea change in momentum and allows negative signals to be acted upon.
On Monday the first pattern appeared in the form of a UFO and Time Continuation. The critical element is that the pattern has occurred at resistance, which allows for the quantification of risk.
Whenever a major signal appears on an Index we take a look at some of the major components to see if they are doing the same thing. FANG and Apple are the obvious choices.
Facebook has seen weekly resistance move to the top for the first time in nearly year. It formed multiple divergences on Monday.
Amazon also posted patterns but no weekly level has shifted so it is less powerful.
Google also moved weekly resistance to the highs and posted a pattern. The difference between the shift is far less than the others and therefore less powerful.
In terms of a topping process Apple is the leader as weekly resistance moved higher a few weeks ago. The blue square was a SlammDunk signal.
The conclusion is that the major components and drivers of the Nasdaq have posted similar patterns which presents a significant barrier and suggest a major top..
Next we look at the broader market sectors. A core philosophy is that whatever is once fashionable becomes unfashionable in what is an endless merry go round. Semiconductors have been the sector leaders for some time and stocks within it have displayed classic topping moments such as Good News Bad Action in the previous earnings season.
SOXX in a semiconductor ETF. Two weeks ago there was a huge reversal that created no fewer than 5 patterns on the same day. However, resistance had not moved to the top, so it was simply a warning. Finally last week, weekly resistance moved to the top and provided a barrier. 142.81 is the key weekly based support. Close below that point and it opens up space to fall significantly as monthly blue line support is so far away at 101.80.
SMH is in the same space but produced a fresh negative UFO pattern yesterday. Key support is at 83.13.
XSD displays a different pattern as monthly blue line support moved much higher in April and stopped the fall. The 61.98 point is the focus.
Technology has also been feeling the love, but weekly resistance has also shifted to the top on XLK.
IYW is in the same space and only has minor daily supports close.
IGM is specific to North American Tech. 142.10 is a critical level.
It is possible to drill down further into your stocks of choice within the sectors. Skyworks (SWKS) fulfilled the topping process and produced a Time Continuation sell. Thus far today is it below the final near term support at 101.00.
XLY Consumer Discretionary has been a middle of the road sector. 88.13 is the focus now that a weekly top has appeared.
IYM Basic Materials has a different dynamic but is sitting just above its final major support. Breach it and it can slide to 75.25.
ICF is a REIT and again has a different dynamic. No patterns as yet but it stopped yesterday at final monthly based resistance.
Elements of the Russel index have joined in. IWF is the Russell 1000 Growth. The shift in the level to the top dates back 15 months.
IWO is the Russell 200 Growth but the dynamic is completely different. The relative lack of time between shifts in the weekly black line resistance has far less power to cap price.
IWS is the Mid Cap value. It is far quieter but significantly the monthly blue line moved to the top in May.
RGI Equal Weight Industrials is showing a very powerful topping formation as the monthly and weekly are in sync.
IYT Transports shows the same pattern but has yet to attack the level.
XTN is the weaker of the Transports with the monthly top process occurring many months ago.
The conclusion from all these shifts is that for the first time in over a year a powerful barrier has been placed above the Nasdaq, elements of Fang and a broad range of sectors and they all require careful monitoring as it suggests a major top is in place. Two things to look for is failure at the topping points or a breakdown of nearest supports especially if there is space below.
Please note this is general advice from Trading Safely for all our clients and has been prepared without taking into account your personal objectives, financial situation or needs. If you do wish to consider acting on our information please contact a licensed financial advisor to discuss the appropriateness of this recommendation for your own personal financial circumstances. Please obtain any relevant product disclosure documents before deciding to invest. Trading derivatives, stocks and CFDs can lead to losses greater than your deposit.