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Nasdaq's Movements Incite Caution


Unless, of course, the 2271 level is broken to the upside on a monthly basis.


NASDAQ (Monthly)

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  • To review, NASDAQ is most likely in wave iv of c in the abc pattern, which will make up wave IV. The critical monthly resistance level is 2271.48. While breached at times, it has not been on a monthly basis.

  • A bullish development worth noting is that the NASDAQ is trading above the 32-month moving average. This line has served as support and resistance pretty consistently over the last 20 years. If the NASDAQ remains above that moving average this month, it will provide fuel to the argument that the market can still work its way higher from here. If not, I'd become even more cautious (or bearish, if you prefer) than I already am.

  • A quick note about moving averages: they serve as support and/or resistance much more effectively in clearly trending markets and are increasingly susceptible to breaks when the moving averages are moving sideways.

NASDAQ (Daily)

Click to enlarge

  • NASDAQ closed yesterday slightly below the uptrend line -- which has been in place since March -- after failing to overtake the resistance line at the 100% Fibonacci projection line. A close Friday below that line would be another nail in the coffin of the NASDAQ.

  • Volume has been picking up on down days -- obviously bearish.

  • Negative reaction to "good" news from the technology sector is another bearish tell for the NASDAQ. Market psychology appears to have changed as good news is sold -- this is typically how rallies end.

  • Failure at the Fibonacci projection line, a break of the uptrend line, increased volume on down days, and an apparent change in psychology has me much more cautious right now.

  • A monthly close at or below 2271 means the current wave count is intact. That suggests a significant move lower is imminent.

Strategy: Caution is warranted here unless and until the 2271 level is broken to the upside on a monthly basis. Additionally, those so inclined may want to begin looking for short-sale opportunities if the weekly close today is below the uptrend line.

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No positions in stocks mentioned.

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