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Watch for Near-Term Correction in Nasdaq


Weekly RSI suggests price is near an intermediate-term high.

Editor's Note: This was originally posted on the Buzz & Banter. It's being republished here for the benefit of the Minyanville community.

If you're a bull, you'll like this chart of the NASDAQ 100 for the long-term implications.

Short-term, you might want to hunker down. This is a five-wave pattern up from the low with very good ratios, good alternation, and good wave structure. The caveat is that in order for it to remain an excellent five-wave specimen, and in order to maintain the long-term bullish outlook, price needs to turn down in the very near future.

If price doesn't experience a healthy retracement from this level, there are mostly corrective wave interpretations remaining for price to climb higher. Don't get me wrong -- price can go quite a bit higher as a corrective wave. In fact, the next major corrective wave pivot would be 1875. The problem is that corrective waves always end badly, and usually go lower than the prior wave down.

Click to enlarge

The weekly RSI does offer up supporting evidence that price is near an intermediate-term high. The RSI tends to peak at the same level for a lot of securities and indices. If you follow the RSI back on the NQ Weekly chart, most of its extreme peaks have occurred at the 73 level. Since February 2000, a peak of 73 in the RSI has resulted in a turndown in price for at least several hundred points. This includes the October 2007 high. There have only been two RSI peaks above 73 in the last decade which were in October 1999 and February 2000.

Click to enlarge

So, do we hunker down now or build a bomb shelter later? Personally, I think there's a fat lady singing somewhere.

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