The Uptrend Is Over

So what has caused the market to sell off in the “best” calendar month of the year? Let’s cut to the chase. The uptrend is over for the NASDAQ Composite. There was no significant news that I heard of to start this sell-off.

Several weeks ago in the Idea Chamber I posted a chart that said scared the heck out of me. I illustrated what I thought was a completed Bullish Impulse wave pattern for the NASDAQ Composite. If a Bullish Impulse wave pattern has completed, then a corrective wave pattern is next. That means the market is in a correction.

This is a 20 year monthly candlestick chart. A Hanging Man candlestick pattern formed for September. October’s candlestick looks like it is going to develop into a Bearish Engulfing candlestick pattern. Two extremely bearish candlestick patterns back to back. And since these formed on a monthly candlestick chart, it is indicating a longer-term correction.

The MACD Histogram was showing a slight decrease in buying momentum and even had increasing buying momentum through September. However, I warned in the Idea Chamber that the last week of September was the best time to take gains based on the chart patterns developing. Now that October is almost complete, the downtrend has almost been confirmed.

Bullish Impulse Wave Pattern

When wave 5 of the Bullish Impulse wave pattern develops into an extended wave pattern like the NASDAQ did, then the pullback area is the bottom of wave 2 of the extended wave. That seems to perfectly match up with the previous high from the internet bubble around the year 2000. Coincidence? I think not.

The Elliott wave book I use for reference says the move will be fast and painful. So how fast and how painful? I know the painful part, and you won’t like the answer. If the Bullish Impulse wave pattern is complete and the uptrend is over, which it appears to be, then the 5,000 – 5,100 price level will be the target pullback area for the NASDAQ Composite. Yes, I said the 5,000 – 5,100 price level – that was not a typo.

The harder part is the time frame. I wish I knew an exact answer for the time frame but I don’t. What I do know is that you will want to be in mostly cash if the 5,000 – 5,100 pullback is the target. When I look to other potential “market tops” like the year 2000, the move happens pretty fast to the downside. The market always takes the stairs up and the elevator down.

I’m imaging that the move happens in a matter of months and will catch most off guard and not allow most time to sell. I’m hoping we still get an earnings season that gives some relief which I intend to sell into.

Relief in the Cards?

I placed a red Fibonacci Extension Tool on this next 1 year daily candlestick chart for the NASDAQ. The NASDAQ pushed all the way down towards the[s2If !current_user_can(access_s2member_level1)]…….

If you want to continue reading this article for the NASDAQ Composite that indicates the uptrend is over, you must first login. A short-term relief area is provided and short-term strategy is discussed for most portfolios.

This is a time to check in on all the stocks in your portfolio. Do you know where support areas are for your stocks and their share prices? The market is at a critical stage of its uptrend.

If you are not a Trendy Stock Charts member, consider joining today! There are several different subscription plans available.[/s2If][s2If current_user_can(access_s2member_level1)] 423.6% Target Line, this definitely seems to indicate the beginning of a new trend.

While I did not illustrate the pattern above, The NASDAQ appears to have just completed a Bearish Impulse wave pattern. Wave 5 of the pattern pushed all the way to the 423.6% Target Line. The 3 anchor points for the Fibonacci Extension Tool I placed on the chart are placed on Wave 1 beginning, Wave 1 end/Wave 2 beginning, and Wave 2 end.

The bigger question, which I think I know the answer to, is this……Is the Bearish Impulse wave pattern that appears to have completed or almost completed, Wave 1 of a larger Bearish Impulse Wave pattern to the downside? If so, the NASDAQ will probably start to see resistance around the 7,500 level with any rebound in the next month or two. Failing to break back above the 7,500 area convincingly is the key to be liquid.

Until the market actually breaks below 6,630.67, the downtrend will not be “confirmed”. However, if the market starts to rebound now and you can sell around 7,500, would you rather do that then wait for a “confirmed” downtrend?

One last housekeeping item. I never encourage the use of margin. If you are on margin now then definitely consider liquidating positions and cover your margin position in case of the fast pullback.

A potential market top like I think we are at does not happen often, this is my first. I hope to be around for another. In the meantime, we need to hope for the best but plan for the worst.

I will be posting charts for individual stocks in the Idea Chamber tomorrow (I may still get a couple posted later tonight). But based on the above, I do not anticipate finding many positive charts. Keep any bullish trades extremely short if you are trading.

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