Below is an hourly NDX that shows 5 waves down to Friday’s low followed by a big rally to resistance — a declining hourly trendline and the 50 hour moving average.
Tuesday, the NDX pulled back from this resistance.
Either Tuesday completed a wave 2 corrective rally or wave 2 will be an A B C structure.
Given this morning’s rally, it appears we are in the B wave currently.
If so, it should complete on a Pinocchio of the aforesaid trendline and a Jackknife back below the declining trendline — probably to the region of the open gap at the 13,400 region.
If we get breakage back above the trendline that is sustained for more than two days, then an alternative scenario is in play… a potentially bullish scenario.
But the damage in the vast majority of growth glamours and leaders that reside in the leading NDX does not support a bullish resolution.
Breakage below the “double bottom” just below 12,800 should see downside acceleration.
Bill O’Neil taught me to determine the Line of Least Resistance two ways, by the action of the leading stocks and by the popular averages themselves.
He did not concern himself with the weight of evidence of indicators.
He went right to the horse's mouth — Price Behavior.
In essence, we have seen broken eggs versus tennis balls among the key names.
In other words, we have many failed pullbacks and failed breakouts.
In what appears to be the failed pullback camp, we have AVLR, TWLO and CRWD, to mention a few — all stalwart glamours.
NTRA and FIVN look like failed breakouts.
Among the last of the Mohicans are ETSY, FVRR and APPS… and APPS left a large range Topping Tail — a Lizard sell setup yesterday.
One of the most powerful thesis underpinning the rally since last fall has been the EV trade, which dovetails with the Alt-Energy trade, led by the soul of speculative sentiment for this bull, TSLA.
TSLA itself is sagging below its 50 day line, something we haven’t seen since March 2020.
In fact, its 20 day moving average is threatening to cross its 50 day.
The following dailies of NIO, XPEV and BLNK show how the EV trade has been short-circuited. Longs would say electrocuted.
ENPH has been the leader in the solar, alt-energy realm.
Hit & Run members took it short on Tuesday at 182 as it backtested a 20/50 Bowtie… a convergence of its 20 and 50 day moving averages.
We have all seen Humpty Dumpty put back together many times in this since the 4th quarter crash in 2018 and the 1st quarter crash in 2020, but time is more important than price and cycles are due to exert their downside influence.
Succinctly, January, February setup as an important peak cyclically.
A secondary high, a return rally test failure (which could be a lower high or a nominal new high, in fact) will speak volumes about the path ahead for the balance of 2021 and beyond.
In sum, most market observers believe the coast is clear, that we cannot crash again anytime soon because we already crashed in 2020.
However, history is strewn with examples of waterfall declines that were harbingers of the Big Kahuna.
We are working on a report that will show the history of what secular bull peaks look like for Monday morning.
Suffice to say that we got a Christmas Crash in 2018.
14 months later, it was followed by the Covid Crash.
So we had two crashes within 14 months.
Market participants have become more emboldened and more greedy each time the market resurrected itself.
I can’t help but wonder if the 3rd time will be a charm for Mr. Bear.