⏳ Final hours! Save up to 60% OFF InvestingProCLAIM SALE

Did The Market Really Top?

Published 06/14/2020, 02:54 AM
Updated 07/09/2023, 06:31 AM
NDX
-
DIA
-
SPY
-
QQQ
-
BIDU
-
SPCE
-

Last Thursday’s we saw a nearly 1900-point decline.

Then, on Friday, we saw four distinct trading patterns emerge.

First, many instruments had inside days or traded within the range of Thursday’s trading range. Is this surprising? Nope. As digestion after feasting on the meat of the bulls is practically mandatory.

Second, several instruments made new 60+ day lows on Thursday and are digesting right near a major moving average.

Third, some instruments simply outperformed, yet tested major moving averages offering a much more sensible risk.

Finally, and here is the stick in the mud, NASDAQ 100 confirmed an island top. Technically, that is a sign of a top. The question is, how much more downside if any, will this island yield?

A classic inside day pattern can be seen on the Dow Jones Industrial Average ETF (NYSE:DIA) chart DIA. Although DIA is currently trading beneath the 200-DMA, since Thursday’s high sits right on the 200-DMA, a break of the inside day pattern would correspond well with a move over Thursday’s high or the 200-DMA.

On the other hand, a break below Thursday’s low would suggest significantly more downside.

An instrument that made a new 60+ day low, followed by an inside day and sitting on a major moving average is Space or Virgin Galactic (NYSE:SPCE). Therefore, a move over last Thursday’s high offers great risk to under the 200-DMA. And like DIA, if it breaks Thursday’s low, it also breaks the 200-DMA suggesting lower prices ahead.

An instrument holding a major moving average that did not sell off as much as the indices did is Baidu (NASDAQ:BIDU). That also offers great risk to under the 200-DMA. And again, you do not want to see this break under last Thursday’s low.

Alas, we must go back to the stick in the mud, or NASDAQ 100 and its island top. An island top leaves literally an island. An instrument gaps up and can hold that gap up for one or more days. Then, what makes it an island, is that it will then gap down, leaving the price standing alone, surrounded by space (water), like an island. QQQs had a one-day island as last Thursday it gapped down.

Statistically, the overall performance rank for island top breakdowns is 38 out of 53 (tops). That means, the downward pressure on the market could outweigh the other three more potentially bullish patterns.

Nevertheless, QQQs could also wind up to be one of 15 out of 53 times the island does not work and the gap gets filled.

{{0|S&P 500 (SPY (NYSE:SPY))}} Like BIDU, held the 200-DMA at 300-now pivotal

Russell 2000 (IWM) 142 resistance with support at 129.50 the 50-DMA

Dow (DIA) 251.38 has to hold after the inside day. A move over 263.35 clears the 200-DMA 263

Nasdaq (QQQ) Island top-rare-will most likely confirm unless trades to 244.51. Support 220

KRE (Regional Banks) 41.45 resistance support at 36.15

SMH (Semiconductors) Inside week-so there’s that 139.78 last week’s low-150 resistance

IYT (Transportation) 158 support to hold or then see 150. 168 resistance

IBB (Biotechnology) Tested and held the 50-DMA. 126 key support

XRT (Retail) Landed right on the 200-DMA so 40.50 held and must keep holding

Volatility Index (VXX) Confirmed the bullish phase. 34.50 support

LQD (iShs iBoxx High yield Bonds) 132 pivotal

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.