While we would like to believe the worst of 2016 is behind us, unfortunately, it's not. Considering that January set historic records for weakness, 2016 is set for more falls.
That said, the rise off the January 20 and February 11 lows has been stellar (just as predicted). We saw the Nasdaq 100 (NDX) react to the market's general oversold condition and strongly suggested that all shorts be covered, as selling was no longer indicated. But now the NDX is ready to turn south again.
This is the daily bar chart of the NDX off the early February low, which shows that the target zone noted in the analysis (hyperlinked above) has already been reached, as noted in this chart, too -- 4350 +/-125. Now that there is actual price pattern behavior, rather than only the decision support engine's forecast, a refined bulls eye of 4413 is able to be generated, which is surrounded by the pink oval.
While we can't rule out a final pop to that level, which would also find resistance from the 200 daily moving average (blue line) and the upper Bollinger Band (purple dashed line), it's not required. That's because the stochastics have already peaked at an anomalous 99% and have rolled over. Once the red crossed below the green stochastic, and they both fall out of the pink oval of their own, which will break below the overbought 90% threshold, a triple stochastics sell signal will be triggered. This should occur within the next few hours/days, and last five-to-13 trading days, resulting in the NDX traveling from the 4300s down to the green oval in the 4050 +/-50 zone, at least. There are two, more bearish, paths off the January-February lows that allow for an even more dynamic slide through the green oval, and down the path of the red arrows toward 3750 +/-100.
So, regardless of the market's intentions for the coming months, it's hinting strongly that the next one-to-three weeks should see a surprising decline before the next buying opportunity arises.
If long, especially with leverage, the decision support engine warns to use 4300 as your stop-loss level, to avoid riding the winners of the past month from the profit zone to the loser list. With the 400 point rise the NDX has produced since February 11 (1500 Dow points, 200 S&P 500 points and 145 Russell 2000 points), bet that now is the time these predictions will be wrong at your own risk. Therefore, simply fold up your profits of the past few weeks, and watch a few hands from the safety of the sidelines.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.