The Nasdaq appears to be losing momentum as it attempts to break old highs near 12,000. Take a look at the momentum studies under the price chart below. Note the direction their trends display. Near termed (stochastics), mid termed (RSI) and longer termed (MACD) momentum are all diverging negatively as the market toys with its old highs. To see momentum diverge on all three time levels can be a strong signal of change. Moneyflow, while strong in trend (see bottom pane), is also showing some divergence in its neartermed momentum (very top pane). This lead to a correction in early 2018. Finally, its about 17% over its 200 day moving average. All this is happening with a falling volume profile. Typically, markets that are above that average by much more than 10% start to look for a reason to correct.
So, it appears there are some underlying currents that we should watch before getting too confident that the NAZ will blow though its old highs in the near-term. Sure, it could happen. But the odds are growing less certain that it will break 12,000 for at least a number of weeks. Meanwhile, there is evidence that a correction is due for this index.
Sentiment has been getting speculative on QQQ
Index ETF’s that are widely followed can give us clues to the future moves of the underlying index. The $146 billion Invesco QQQ Trust Series 1 (QQQ) ETF has seen a higher than average of $1.5billion per day inflows over the past month, according to data compiled by Bloomberg. However, the fund posted its biggest
withdrawal in two decades (!!) in late September. The recent uptick in options activity has spurred thoughts that the ETF is being used as a hedging vehicle and a speculation tool to a larger degree. That implies more volatility ahead, if this is true. The sentimentrader.com optix shows that earlier this month the QQQ shares went into over-enthusiastic territory. This is typically a contrarian (sell) signal. But, that sell signal didn’t play out with a decline. Note the overall trend on the optix. Its showing us that optimism is indeed trending up on the QQQ units since the September washout. When will the greatest fool buy?
Stock market outlook: S&P 500 could fall 5% in blue wave: strategist
Recall that I mentioned in a recent blog that Biden has made it clear he will pressure the big tech players like Amazon, etc. These are the NASDAQ leaders. They’ve also been responsible for much of the SPX upside.
Here’s a story I happened to read on Apple news that follows my own comments:
The S&P 500 and the Dow Jones could fall 5% with a decisive victory by Joe Biden, in which the Democrats win the election, and control both chambers of the Congress, a chief market strategist told Business Insider. TickerTocker’s Steve Kalayjian, said: “The S&P 500 is fine now, but if Biden wins, there will be a sell-off. If Trump wins, you’ll see the Dow and S&P easily climb to new highs,” Kalayjian said. “I see a decline of 5% or more.” Kalayjian said uncertainty over the Democrats plans
Read in Business Insider: https://apple.news/AMI_WvmHXQo2LMYnnEjETWA
Conclusion
It seems to me that there is enough evidence to be a bit cautious on the NASDAQ, and its components for now. Longer termed trends and moneyflow are bullish, but the shorter termed outlook might be a bit less positive. The index is priced for perfection. And it isn’t yet taking into account potential volatility surrounding the election.
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