Nasdaq Weekly Profit-Taking Zones
Updated
The bull run on Nasdaq continues to break records. Many don't recognize that runs that move parabolic like this are more likely to continue than reverse....but they do eventually reverse. And when that occurs, it's rarely gentle. Taking profits in a market like this is difficult. These are the zones I'm watching to act as inflection points, just in case this monster trend does reverse:
Orange (8138.5-8175.5) : This zone is the most recent and likely support at the current date. If Nasdaq stays above ~8140, the potential for a parabolic break to the upside (similar to June 2019) remains the expectation. Buy-the-Dip for short-term gains is the plan as long as we stay within orange. Break below the orange zone (a 2.4% loss from Tuesday's all-time high), and this wave higher is done. Expect at least a few weeks of rest with price going sideways, but more likely a more severe pullback period. Breaking down below the orange zone without breaking above it first will trigger exiting most long-sided trades, including the majority of longer-term bullish positions. I plan to hold only defensives, metals, maybe a few growth names with a trailing stop.
Pink (7863.5-7974.5) : This zone represents a 5%-6% drop from the all-time high. Falling into this zone on a single day that opened in the orange zone is reason for significant medium-term concern. Closing a week within the pink zone would lead me to exit any remaining long-term longs on the next sign of strength, such as a 50% retracement. I'd also be looking to open short-sided trades at that point. If the pink zone is tested from above, holds, and produces a weekly close above it, I'll scale out of bearish trades and be on the lookout for short-term, oversold, high reward:risk ratio long opportunities, anticipating at least some attempted bounce.
Red (7511-7697) : This zone is 8%-10% below the current ATH and represents the final support point before the very bottom of the long-term bullish trend (established back in 2009 and most recently tested in December, 2018). Short-term bearish trades opened in the pink zone will have 1st targets in the red zone. Close below it, and we are in for wild volatility with wide daily trading ranges. I'd not want to be watching charts if I was a long-term investor and not a trader, but it should be a fun day to day trade if given the opportunity. Main support (7270) likely holds at least once, but we're talking a 12% drop from all-time highs there. Establishing support in or below the red zone should be enough to stabilize a move back to the top of the rising wedge, but if it tries and doesn't make it back above pink, it's time to get VERY short (head and shoulders pattern).
Note the bearish divergence on the indicators (along with short-term trend change confluence on the RSI and TMF similar to January 2018). We likely test the mid-point on these indicators, then make another higher high similar to March, 2018. IF both indicators fall below the midline (like October, 2018), sell or shorting on a lower high.
Orange (8138.5-8175.5) : This zone is the most recent and likely support at the current date. If Nasdaq stays above ~8140, the potential for a parabolic break to the upside (similar to June 2019) remains the expectation. Buy-the-Dip for short-term gains is the plan as long as we stay within orange. Break below the orange zone (a 2.4% loss from Tuesday's all-time high), and this wave higher is done. Expect at least a few weeks of rest with price going sideways, but more likely a more severe pullback period. Breaking down below the orange zone without breaking above it first will trigger exiting most long-sided trades, including the majority of longer-term bullish positions. I plan to hold only defensives, metals, maybe a few growth names with a trailing stop.
Pink (7863.5-7974.5) : This zone represents a 5%-6% drop from the all-time high. Falling into this zone on a single day that opened in the orange zone is reason for significant medium-term concern. Closing a week within the pink zone would lead me to exit any remaining long-term longs on the next sign of strength, such as a 50% retracement. I'd also be looking to open short-sided trades at that point. If the pink zone is tested from above, holds, and produces a weekly close above it, I'll scale out of bearish trades and be on the lookout for short-term, oversold, high reward:risk ratio long opportunities, anticipating at least some attempted bounce.
Red (7511-7697) : This zone is 8%-10% below the current ATH and represents the final support point before the very bottom of the long-term bullish trend (established back in 2009 and most recently tested in December, 2018). Short-term bearish trades opened in the pink zone will have 1st targets in the red zone. Close below it, and we are in for wild volatility with wide daily trading ranges. I'd not want to be watching charts if I was a long-term investor and not a trader, but it should be a fun day to day trade if given the opportunity. Main support (7270) likely holds at least once, but we're talking a 12% drop from all-time highs there. Establishing support in or below the red zone should be enough to stabilize a move back to the top of the rising wedge, but if it tries and doesn't make it back above pink, it's time to get VERY short (head and shoulders pattern).
Note the bearish divergence on the indicators (along with short-term trend change confluence on the RSI and TMF similar to January 2018). We likely test the mid-point on these indicators, then make another higher high similar to March, 2018. IF both indicators fall below the midline (like October, 2018), sell or shorting on a lower high.
Note
ABSOLUTELY NAILED the profit-taking zones for my long-term longs. Got an orange-zone dip-buy, then shorted again through to red. Took 1 more shot at a dip-buy on 3/18, but swapped it for a short today (3/20) near B/E when the rally appeared to fail. I did NOT expect such a fast move, but it was clear we were returning to the Dec 2018 lows eventually. I do believe we actually go lower.
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