If you ever wished you could be on the memo distribution list before the party ends and the police arrive, this could be the day. Let's put it into visual perspective, shall we?
Imagine being on the beach, trying to be the last guy to head out of town as a hurricane forms offshore. As conditions worsen, your faithful friend beckons you from the parking lot, with their car warmed up and ready to burn rubber to escape. You're so focused on what you want to focus on that you misunderstand the message of "wave, wave" as them wanting you to wave back at them. Instead, your terrified buddy is pointing to the tidal wave that is about to clobber you. By the time you can actually feel the water on the back of your neck, it's too late to leave, and you're washed away. When you look back upon the last few decades, have you ever stayed too late at the party, then wished you'd taken warning more seriously? Here's the monthly chart of the Nasdaq 100 index, dating back to the final days of the 1999/2000 party.
Notice that after taking sixteen years to get back to the early 2000 peak, the Nasdaq took an up-down-up path to get there, a corrective structure. So, there was a 30-month crash, wiping out 95% of the Nasdaq's growth during the 1990s, and a 420 month rise to get back to that peak. After all that work, the last 24 months have withnessed a series of higher highs in price while the stochastics formed lower highs -- a bearish divergence sell signal. This chart shows the three best buying opportunities this century; 2002, 2009, and the one coming in 2019 +/- 1 year (as up here at all time highs is the definition of what a buying opportunity doesn't look like).
Let's drop down a fractal of trend and review the intermediate term situation, as illustrated on the weekly bar chart.
This chart zooms in on the last two years of the monthly chart's scope, and shows how this degree of trend is nowhere near an oversold buying opportunity where the reward demonstrably outweighs the risk, like was the case at the late June (Brexit) low, and the February low, which was the most oversold low the Nasdaq had been since October 2011. Here, too, these stochastics are extremely overbought, price is inflecting at the upper olive/gold line, the upper 2 standard deviation band (controlling 95% of normality), and there is a five wave structure from the June low with all of the required sub-waves to be considered complete. A weekly bearish divergence sell signal is being formed, and is about to join the monthly degree of trend.
Finally, let's look at the shortest of our major trend degrees, the daily bar chart. Our decision support engine (DSE) uses all three of these trend degrees, along with dozens of empirical data streams and indicators, to probability-rank future outcomes, based upon historical cause/effect relationships. Click on the DSE link to receive a free 10-day trial to our Trading Room and DSE Alerts services, and benefit with our our members in real-time from analyses on dozens of stocks, ETFs, commodities, and much more.
This chart puts the rise since February under the microscope and shows the loss of energy of each rally this year, as each blue box of rising price behavior is smaller and shorter than its predecessor. The final rise, which is the rise off the low of September 12, created a higher high in price, while a lower high in stochastics, setting up a short term bearish divergence sell signal like that in the huge monthly trend, and about to be triggered in the weekly degree.
Here, prices just spiked to the upper 2 standard deviation band, but failed to touch it, and are now reversing sharply. The purple dashed line (upper Bollinger Band) was too much for the Nasdaq to overcome, and several ominous sell signals are being flashed all at once. DSE, therefore, is on red alert for a surprising "awakening" of some news this week that is about to arrive to justify the forecast of a market accident waiting to happen! It's very important that investors use 4625 as a protective sell stop, and exit Nasdaq related holdings on any break below that level, or prepare for at least a possible slide toward the 4150 zone, with 3900 potentially coming thereafter.
These analysis techniques, and many other intricacies not able to be shown in this venue, are what we will be intensely focusing on at our Dallas (Texas) weekend workshop on October 15-17th. This will be our last in-person training of the year, and seats are limited to the first dozen that want to attend. So, use this link to find out more, and please contact us with any questions.
This article is commentary by an independent contributor. At the time of publication, the author held was short the market via TZA.