NDX / QQQ: Broader Picture for Nasdaq 100 in Six Charts

Updated

Primary Chart: Potential for Symmetrical Pattern in Two Major Segments of Decline Shown by Roughly Parallel Price Paths in Orange

Many recent posts have contained a great deal of written analysis and explanation. This post is intended to be a chart-heavy weekend update on the NDX as reflected by its well-known ETF (). This post will be far more concise and contain mostly charts and brief descriptions.

Supplementary Chart A. The two month downward trendline from the mid-August 2022 peaks has been broken, a shift in shorter-term trend degree. Bears don't need to be told that something has shifted in the short-term. Like other squeezes this year, this one probably hurts. But note the yellow Anchored VWAP from 2018 lows, currently at $282.45—price looks like it will confront this level this week. Price will also confront a longer-term Fibonacci level at $286. These levels could be a spot where price could stall and consolidate a bit, perhaps into the FOMC presser on November 2, 2022.
Supplementary Chart B.The weekly chart of the Nasdaq 100 shows the downward trendline very much intact throughout this entire bear market. Note the long-term VWAPs have now begun to slope downward. The long-term VWAPs are anchored to the Covid 2020 low and the December 2018 low. Price will confront the 2018 VWAP again in the coming days. The first test of that VWAP was repelled this past week after FAANG earnings largely missed (except for AAPL). The Covid 2020 VWAP approximately coincides with the down trendline from the all-time high.
Supplementary Chart C. The next chart zooms in a bit on the December 2018 VWAP. This VWAP aligns quite well with the .382 retracement of the major decline from August 16 to October 13, 2022. This area of confluence is $282.32, and price may consolidate or whipsaw around this level before continuing in whatever direction it chooses after FOMC, though the rally appears as if it may have a bit more steam. Unless the Fed presser completely squishes the rally (a distinct possibility), a reasonable target is the .50 retracement at $291.60, but only if this .382 level and 2018 VWAP at $282 can be relcaimed.
Supplementary Chart D. A derivative of the Bollinger Bands, the %B indicator distinctly shows a W-bottom pattern. As price made lower lows in October 2022, the relative lows were higher than September 2022 lows (relative means in terms of standard deviation from a mean).
Supplementary Chart E. Weekly RSI shows a major positive divergence (also known as a bullish divergence). This has not yet been conrfirmed. Sometimes, weekly divergences can take quite a will to take effect—notice that the weekly negative divergences—starting with the RSI peak in late 2019) took about 2 years to result in a major bear market. In other words, even though there were negative divergences on weekly RSI, higher highs continued in the index until late 2021 where the final negative divergence was formed. This means don't front run a weekly RSI negative divergence, but keep it in mind, especially when they begin to add up.
Analysis and Discussion. Short-term trends have clearly shifted, but longer-term downtrends remain intact with the bearish structure unaffected by the short-term noise. But as stated in my recent SPY analysis, don't fight the rally. Rallies are an inevitable part of downtrends, which by definition include lower *highs* and lower lows. There are reasons for a multi-week rally, though it won't be in a straight line. Plenty of resistance lies overhead, however. And the longer-term downtrend remains intact on logarithmic and linear charts. Maybe the Nasdaq 100 makes new lows next year in the first half of 2023.

One possibility, however, is that the two major segments of this decline are roughly parallel. See the orange price paths on the Primary Chart, the first one of which follows price, and the second one of which follows price and then projects the hypothetical path that would be parallel to the first path.

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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

Note

spy_master posted this relative chart of the Nasdaq 100 vs. TLT (an ETF tracking bonds), and it's an excellent longer-term perspective that bolsters the bearish case in the longer term despite the "noise" of rallies and declines in the shorter time frames. Complete credit goes to spy_master—be sure to check out his insights along with another helpful chart in the comments below.

Note

The title said "six charts" but now this has reached seven or eight with the updates (expectation breaker). But here is the VIX. It's in a short-term to intermediate term downtrend with lower lows since October 12. This is why one cannot fight the market when it's rising and VIX is falling. Certainly the FOMC presser could completely reverse this multi-week VIX decline in one session. But if markets can be trusted at all, VIX *might* be telling us that the rally may have more steam into November OPEX. No one knows, we can't predict, but we can watch and be open to what the signs are saying (even if the technicals start saying the opposite on November 2, try to remain open minded).

Perhaps VIX needs to tag the dark blue uptrend line before spiking again or the 200 week MA (purple)

Note

Remember last FOMC day? Markets fell dramatically, ripped higher dramatically, then fell even further. Here is a screenshot of the S&P 500 on September 21. Instead of having just one false move / whipsaw, there were two before the real move took place. This doesn't mean it will repeat the same way. Just showing what is possible on days like this:

Note

One sharp macro expert said this week that the Fed Fund futures curve right now predicts a terminal rate around 5% through July 2023, which has risen since mid-October 2022.

No one knows what the Fed will say today. The Fed could utterly squish the rally. Or the Fed might say something interpreted as dovish, and for that sort of scenario, remember this summer when markets rallied on the misinterpretation of Fed chair's comments suggesting a shift, which was later clarified in August at a Jackson Hole conference after which markets tanked. But something dovish wouldn't be too surprising, right? Midterm elections are a week later than FOMC on November 8, for goodness sake, why was FOMC timed *before* the elections like this? It's odd given that the Fed is supposed to be apolitical with a statutory mandate that is removed from the political agendas of either party.

Note

QQQ seems to be holding above the VWAP off the low after a failed break below it. That VWAP is about 272.82.

Two other key levels: 269.43 and 273.01. If the bear rally is to continue, price should hold above these by the close. We'll see.

Note

That makes several whipsaws just like last FOMC. Could the price action get any more volatile?
1. Selloff October 28-November 2 this morning.
2. FOMC statement drops, then a rally of almost 1%.
3. Then a selloff over -1%.
4. Then a comeback rally in progress--will it hold?

Trade closed manually

It seems that the Fed took the route of holding steady and even expressly negating the idea of a pause in hikes, which was quite hawkish by any measure—"higher rates" being held high for longer was the central message.

Inflation is not coming down, the Fed chair said. And it is "premature to consider a pause" in hiking." The Fed sent a message emphasizing continued need for more restrictive policy. Markets—especially tech—didn't like this at all. Thus, QQQ / NDX fell -3.43% on the day.

Because of the uncertainty around FOMC presser events, last night's update cautioned: "No one knows what the Fed will say today. The Fed could utterly squish the rally. Or the Fed might say something interpreted as dovish, and for that sort of scenario, remember this summer when markets rallied on the misinterpretation of Fed chair's comments suggesting a shift, which was later clarified in August at a Jackson Hole conference after which markets tanked."

So even if something dovish had been said, it would not have changed the broader macro picture which has remained bearish.

But markets were clearly on edge hoping to see whether the short squeeze would continue with some sort of dovish speak from Fed chair Powell, which explains the 1% rally just before the presser (after the Fed's official statement was released).

Lastly, the odds have fallen dramatically for the possible scenario outlined on the Primary Chart where NDX / QQQ could rally all the way up to the top of its parallel channel (the return line) in a symmetrical manner to March 2022's bear rally. This seems much less likely after today's bearish close. Though that seemed possible with short squeeze momentum carrying indices significantly higher, and seasonality pointing to upside into early November, the Fed squished the rally and NDX broke decisively below key levels.

Trade active

On the day of the FOMC presser November 2, it looked like the Fed squished the rally once and for all. But on slightly better than expected inflation data today, markets are ripping higher once again. Because the NDX did not take out its low from October 13 on the post-FOMC decline, this implies that NDX can push for one more leg higher in this rally, potentially up to the targets shown on the Primary Chart.

To reiterate those upside targets, they are first 282.32 QQQ. If 282 is reached, then consider the next target at 291.60 QQQ. These bear-rally targets are the most likely to be reached in our opinion, i.e., the most conservative.

Only if the conservative targets are reached should the aggressive target of $300-301 be considered.

Note

On Nov. 10, ST updated this post early in the trading session when QQQ was trading around $277-$278, and then identified a conservative upside target of $282. That target was reached quickly—NDX / QQQ rallied 7.4% by the close on Nov. 10, and by close of week, QQQ was at $287, making its way well toward the next more aggressive targets of $291 and then $300.

There may be some consolidation before these higher targets are met.

The original post stated that this was a bear rally in the context of a downtrend at the primary degree of trend.
So now that price has stopped falling post FOMC on Nov. 2, and has actually re-established the rally off Oct. 13 lows, the original idea above, where the two major legs of this bear are roughly symmetrical, is back in play *as a possible price path.* Many are saying the lows are in, and who knows maybe inflation plummets, the Fed pivots in a month or two, and markets are back at all-time highs in a few months. ST doubts that is the case. But it's important not to fight bear rallies as discussed in the original post— downtrends are made up of extreme emotions on the way down and extreme emotions where prices rip higher with just as much force as the down moves. Moves in both directions go further than anyone expects or thinks. So let the rally run out of steam, and don't fight it even if your gut says the macro cannot support such a move. It helps to not allow a well-defined macro argument to create an inflexible mindset that fights a powerful bear rally with one's capital.

So in short, prices can likely ride back up to $291, the aggressive target and perhaps even $300-$301 by the end of the month.
On the main chart, price has actually tagged the outer edges of the first yellow circle (the smaller one). It's likely that prices can push a bit higher before this bear rally is over. ST will assume that this remains a bear rally until the larger trend structure is definitively broken.

Thanks for reading.

Note

NDX reached the more aggressive target of $291. It appears to be stalling somewhat at this target which is a major Fibonacci level.

Trade closed: target reached

NDX has *nearly* reached the top of its parallel channel shown on the Primary Chart published back in late October 2022. While this didn't seem possible at the time, bear rallies go further than expected. This one was no exception.

While the rally did not hit the parallel channel in the time frame identified by the yellow circle, it hit the down TL (upper edge of channel) within a few weeks after.

In the November 10 update, ST forecasted that NDX could push for one more leg higher potentially up to the targets shown on the Primary Chart. Those targets were $282, then $291-$300. Price hit squarely within the more aggressive target zone today by reaching $296.

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