NASDAQ Futures appear to be in Wycoffian Distribution
Updated
Very technical situation is presenting itself on the Nasdaq futures. It is very technical because of how inter-connected the different phases are and the patience required to see and play it. Ideally the overall structure will get you over-performance compared to the constituent structures.
The Components
Preliminary Supply and Automatic Reaction: A impulsive uptrend sees its first round of selling off. This selling pressure leads to an automatics reaction where momentum buyers continue the rally.
Buying Climax Most of the momentum players exit their trade. There is probably same underlying structure that they see and they all take profit off of that structure. In our chart I outlined a ascending triangle that probably had a lot of trader take their profits. Price action returned to the triangle resistance to test it as support fueled by support and resistance traders.
Secondary Tests Swing traders beat the price around for a couple of days in a rage bound manner.
The Ice Set by the area between the preliminary supply and automatic reaction (or in other cases, a particularly strong sign of weakness0 the ice is a zone that at first acts as support but when it gets cracked price action drowns if it cannot get above it in a decisive manner.
Last Point of Supply A very weak uptrend that ends confidence in further upside to most savvy investors and traders.
Markdown (not shown) price falls impulsively.
On QQQ Proper we see that price action has been gapping around a bit leading to jerky price movement. As a general convention when price moves in such a rapid manner it has a habit of retracing until all the gaps get filled. The short squeeze and pump today helped fill the gap from a few days ago and is one more reason as to why we could trade lower. Taking time to fill the gaps below also gets us closer to having the double top become a reality. But of course one always needs price and volume action to confirm. You can thing you see a double top when it turns into an ascending triangle on you when people buy the dip aggressively. The On Balance Volume definitely suggests price is going to break down.
Target setting gets a little complicated because distribution would suggest we are going to get a bit more performance than the constituent formations would suggest... Less complicated: The flagpole and wedge will overperform.
I feel confident in this idea because the so many of the components of the NASDAQ individually look awful. TSLA has been in an massive correction
Apple looks to have fallen out of a wedge and is flipping previous support as resistance
Amazon looks rangebound in a way that it could develop into full blown Wykoff distribution.
Netflix hit target on a massive triangle and has been spending the last couple of months topping.
I could go on and on. Even things that appear bullish like googl/goog look like they are blowing off their tops. Whether you think this is a great reset or great rotation it seems clear the Nasdaq is primed to take a beating. For a generation people have just bought the NASAQ. Now for a couple of years traders may just think "I'll sell the NASDAQ." This reminds me eerily of the dump before COVID 19. Lots of things look very healthy but under the hood in equities a dump was brewing then the news latched on to a problem and the politicians over-reacted and spiked the economy.
The Components
Preliminary Supply and Automatic Reaction: A impulsive uptrend sees its first round of selling off. This selling pressure leads to an automatics reaction where momentum buyers continue the rally.
Buying Climax Most of the momentum players exit their trade. There is probably same underlying structure that they see and they all take profit off of that structure. In our chart I outlined a ascending triangle that probably had a lot of trader take their profits. Price action returned to the triangle resistance to test it as support fueled by support and resistance traders.
Secondary Tests Swing traders beat the price around for a couple of days in a rage bound manner.
The Ice Set by the area between the preliminary supply and automatic reaction (or in other cases, a particularly strong sign of weakness0 the ice is a zone that at first acts as support but when it gets cracked price action drowns if it cannot get above it in a decisive manner.
Last Point of Supply A very weak uptrend that ends confidence in further upside to most savvy investors and traders.
Markdown (not shown) price falls impulsively.
On QQQ Proper we see that price action has been gapping around a bit leading to jerky price movement. As a general convention when price moves in such a rapid manner it has a habit of retracing until all the gaps get filled. The short squeeze and pump today helped fill the gap from a few days ago and is one more reason as to why we could trade lower. Taking time to fill the gaps below also gets us closer to having the double top become a reality. But of course one always needs price and volume action to confirm. You can thing you see a double top when it turns into an ascending triangle on you when people buy the dip aggressively. The On Balance Volume definitely suggests price is going to break down.
Target setting gets a little complicated because distribution would suggest we are going to get a bit more performance than the constituent formations would suggest... Less complicated: The flagpole and wedge will overperform.
I feel confident in this idea because the so many of the components of the NASDAQ individually look awful. TSLA has been in an massive correction
Apple looks to have fallen out of a wedge and is flipping previous support as resistance
Amazon looks rangebound in a way that it could develop into full blown Wykoff distribution.
Netflix hit target on a massive triangle and has been spending the last couple of months topping.
I could go on and on. Even things that appear bullish like googl/goog look like they are blowing off their tops. Whether you think this is a great reset or great rotation it seems clear the Nasdaq is primed to take a beating. For a generation people have just bought the NASAQ. Now for a couple of years traders may just think "I'll sell the NASDAQ." This reminds me eerily of the dump before COVID 19. Lots of things look very healthy but under the hood in equities a dump was brewing then the news latched on to a problem and the politicians over-reacted and spiked the economy.
Note
The bottom of the wedge target has been reached. I suspect we will have an impulsive move over this week as we fill the gaps in a rapid manner. If we do have a double top I expect us to limit down next week.
Trade closed manually
I suspect another short squeeze and potentially another re-test of the ice. Will continue to look for bearish structure to re-short.
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