NASDAQ – Sell Signal?

BarroMetrics Views: NASDAQ – Sell Signal?

A friend of mine, Tom Wong (fund manager in NY), dropped me a line to say I was focusing on the wrong index. I ought to be looking at the NASDAQ: this index that will lead the decline because it’s been the one leading the rise.

He’s right.

Figure 1 shows a comparison since the last quarterly swing low. The NASDAQ has risen 26.77% while the S&P only 17.76%.

Figure 2 shows the current NASDAQ; Figure 3, the current S&P.

[The red lines represent the 18-day swing (monthly trend), the black ones, the equivalent of the 13-week swing (quarterly)].

Neither chart has generated a change in trend pattern. So, at this stage,  if we see a decline, I’m taking the view that we’ll be seeing a correction either in the 13-week or 18-day swings. Because of the Ray Wave count, I lean towards a 13-week correction.

If that proves true, what percentage correction are we likely to see?

Figure 4 shows the NASDAQ calculations. The sample size is too small to be reliable. Working with what we have, I’d say 13% to 19% (S&P around 10% – the sample size there is reliable).

What would I need to see to say that a correction is on the way? A bearish conviction-close in the S&P below the June 29 low (2405) by Monday, July 10. By ‘bearish conviction-close’, I mean:

  • an open no lower than in the top third of the day’s range.
  • a close no higher than in the bottom quarter of the day’s range.
  • with a true range of not less than 60.

The S&P bearish conviction-close would confirm the NASDAQ heads up generated on June 30, 2017.

I’ll look to trade the 18-d correction following the first 13-week leg down. The strategy means I’m sidelined for the 18-day, first leg down.

Image credits: safehaven, optuma





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