Ripe For A Bust? NAZ Leaves Two Sell Signals On Turnaround Tuesday

“Divergences are like laxatives. You never know if one is enough or two is too many.” – Justin Mamis

“The usual bull market successfully weathers a number of tests until it is considered invulnerable, whereupon it is ripe for a bust.” – George Soros

After rallying more than 105 above its February all-time high, the NAZ reversed a week ago Monday, leaving a decisive large range Key Reversal Day.

The downside follow through was meager and brief.

Once again, the 20 day moving average acted as support following through on Holy Grail buy set ups.

The Holy Grail is a test of the rising 20 day moving average.

In contrast to recent pullbacks that undercut the 20 day moving average, last week barely grazed the 20 day.

It looks like traders have learned the behavior well and front ran the setup.

While last week's touch of the 20 perpetuated a new all-time high yesterday, the NAZ gapped up to a new record high but closed near session lows.

In so doing, the NAZ left two sell signals.

It left a Gilligan sell. A Gilligan sell is a gap up to a new 60 day high with a close at/near session lows.

I created the strategy more than 20 years ago to identify at least short-term exhaustion.

Last week the NAZ also registered a large range Gilligan sell.

It must be said that many tops are Gilligans but not all Gilligans are tops.

Tuesday’s turnaround in the NAZ stabbed immediately through last week's high, leaving a Soup Nazi sell signal as well.

This is a new 20 day high with an immediate (the same day or next day) back through the prior high within the 20 day lookback.

The criteria is that there needs to be at least a 4 day interval between the new highs to insure against continuation moves.

The 4 day separation also allows for the idea of a test failure of the prior high.

Not all Soup Nazi test failures are created equal.

In this case, we may be staring at a test failure of last week’s big Key Reversal Day.

As always, follow through will be the key.

Since June, the NAZ has carved out 3 successful Holy Grails, tests of its rising 20 day m.a.

If the index should head down here, a fourth such breakage may well lead to a test of the 50 day moving average near 9800. This ties to the February top.

It is worth considering that the NAZ has not visited its 50 day line since April 21, precisely 90 days/degrees ago.

Markets typically play out in threes. The fourth time through often seals the deal.

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