Why the Nasdaq May Be Set for a Major Waterfall Setup
While FB’s mission may be to ‘connect the world’, the realization that social media companies are also in the manipulation business, feeding customers what they want you to see, is likely to continue to cause backlash from consumers…and from investors.
Succinctly, the cost to connecting the world is being perceived ‘all of a sudden’ as an invasion of privacy.
FB and TWTR before Congress wasn’t news and didn’t create any news per se, yet it was the worst day for momentum since July 2016.
Indeed the most bearish thing about Wednesday is that was no news for Mr. Market to hang his Explanation Hat on.
Yesterday’s tech wreck came like a thief in the night on the heels of spikes in many glamours on Tuesday.
For example, TWLO’s big drive to a new-all time high (which was a long day trade idea for Tuesday) was completely engulfed yesterday leaving bearish Train Tracks.
Ditto SQ, FTNT, DATA, TTD and EXAS to mention a few.
A daily TWLO below shows the Train Tracks from the upper trend channel.
Not all Train Tracks are created equal — when they come from a test of a trend channel, the likelihood is exhaustion is on the table.
Follow through below 80 suggests a decline to the 50 day ma. and the open gap to around 70.
This ties to a trend line connecting this years February low to the July low.
Below 70 suggests a push to the lower rail of the trend channel which happens to dovetail with the prior summer double bottoms.
So TWLO could be a great trading vehicle for shorting rallies now if it sees downside follow through indicating its line of least resistance is pointing lower now.
One routine I like is to turn a chart upside down. It helps see things from a different perspecticve. Do that with TWLO and it looks like it may be an interesting buy candidate. Hence, it may be vulnerable here.
There were notable Train Tracks and signal reversal bars across the board on glamours outside of tech on Wednesday.
W left bearish Train Tracks and looks like 3 drives to a possible short-term high.
Runaway CGC left a large range Gilligan sell.
GRUB knifed through its prior swing high with authority.
Ditto small cap runaway, IIN.
EXAS left a large range Gilligan sell.
I can’t help but wonder if a big fund(s) pulled the momentum plug to beat the rush to lock in profits as the beginning of the end to the 3rd quarter is on the table.
Sometimes a huge fund will use a strategy of marking up their big winners causing their competition to chase and then hit bids on these same names indiscriminately to impale their competition on these spikes before they can react, thereby improving their relative performance.
I don’t know if that’s what was going on yesterday, but there clearly was indiscriminate selling in the leaders.
Let’s look at a daily NAZ itself.
The NAZ has not yet turned its 3 Day Chart down but could do so on Thursday on trade below yesterday’s low.
If so downside follow through over coming hours/days will mark a failure of prior resistance to act as new support in league with a push below the 8/27 gap and a sell signal will be issued.
Notably, the last 3 times the 3 Day Chart turned down since June the NAZ worked out a pattern low.
There is now a trendline (red) connecting these summer lows which roughly ties to just below the aforesaid short-term support AND also ties to the 50 day m.a.
Arguably, a waterfall setup is on the table if three things happen:
1) Prior support and the open gap from last week don’t hold
2) Prompting a break of the summer’s 3 point trendline triggering a Rule of 4 sell signal.
3) Follow through below the 50 day m.a. which has acted as support since May.
If this trifecta of technical occurs, the indication is a move to the trendline for 2018 bear 7500 which ties to a test of the 200 day m.a.
There are three things that backstop the viability of this setup actually playing out.
1) The NAZ is pulling back from trend line resistance that marked the January top and the March top.
2) Historic cycles are due to exert some downside pressure in this time frame.
3) On August 30, I wrote, “The NAZ is at a milestone. The NAZ closing high in March 2000 was 5048.62.
5046.62 X 1.618 (Phi) is 8168.66.
At the same time, 90 squared is 8100. So there is some compelling geometry on the table.
As my friend and fellow trader Peter Atwater puts it, “Since January, the stock market has been going through a very long Vampire goodbye. Having dug in, investors are hanging on by their FANG’s”
And, the FANG’s are in government trust busting crosshairs.
“You are a slow learner, Winston.”
How can I help it? How can I help but see what is in front of my eyes?
Two and two are four.
Sometimes, Winston. Sometimes they are five. Sometimes they are there. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.” George Orwell, 1984
Positions in SPXS, UVXY
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