That I know, I must be right.” – It’s the Singer Not the Song, The Rolling Stones
“A peak here is in keeping with the 7 year cycle from 2000 as we are 7 X 3 years from the 2000 top.”
I wrote the above in Monday morning’s Hit & Run Report, High For the Year, where I compared the pattern in the NAZ since this year's February ATH and the test of that high on April 29 to that of the SPX pattern high in 2007 when it struck a primary high in mid-July and a nominal new secondary test failure high in early October that year. That was the final bull market top.
In the same report, we showed a NAZ daily for the year.
Following last week's test of the February high, the NAZ lost its 20 day moving average on Monday. This failure at the 20 day was a precursor to Tuesday’s gap down, which elicited a test of the 50 day line.
As well, the NAZ tested a rising trendline from its March 5 low before bouncing into the bell.
In so doing, the index carved out a 3 point trendline which may perpetuate a rally attempt for 1 to 2 days.
Because the NAZ 3 Day Chart is pointing down, two consecutive higher daily intraday highs will put the NAZ in my Minus One/Plus Two sell position. Be that as it may, the 3 Day Chart is a key factor in my Swing Method for determining the Line of Least Resistance.
If this scenario plays out, it puts the index in a very vulnerable position as there is now a 3 point trendline looming below.
Breakage below this 3 point trendline will trigger a Rule of 4 Sell signal, which often sees fast declines.
The NAZ could stage a short-term rally attempt here from a trifecta of technicals, from which the overall market could take its cue.
These three amigos are:
1) Phil D. Gap (from April 5)
2) Test of the 50 day moving average
3) Test of a rising trendline from the important March 5 low
Be that as it may, a Rule of 4 Sell on trade below Tuesday’s low opens the door to the 200 day moving average in the 12,400 region. The NAZ closed yesterday at 13,633.
Interestingly, all this amounts to is a test of the March low of 12,397.
With what looks like a test failure of the February high in its pocket, it looks like the NAZ has a ticket for a 1200 point trip south.
The action of the marquee growth glamours underpins this notion.
For example, OKTA was one of the first high-flyers to turn the corner, putting in what looked like a Handle to a Cup & Handle. The bulls grabbed defeat from the jaws of victory with OKTA giving up the ghost, sliding from ATH region to its 200 dma in just days.
TSLA squandered its large range outside up day from Friday, which promised a push into an open gap near 740 and the wheels are poised to come off on a drop below 660.
TWLO gave up its 50 day line on Monday, a prelude to a knife to its 200 day yesterday… from where we saw bouncage.
FVRR was one of the poster children of the Covid Rally, marching from 20 to 226.
It finally tagged its 200 day moving average yesterday at 187/188 for the first time since the ramp began.
Hit & Run members shorted ETSY on a swing on Friday at 199. It careened to the 185 region yesterday, giving us a nice window to cover the balance of the position.
Ditto on Tuesday, Hit & Run also covered the balance of swing shorts in former momo names PLUG and EDIT that have seen Climax Runs & Crashes.
But the real canary in the market is the FANG’s have lost the venom of momentum.
AAPL had blow-out earnings which led to a 10% drop.
Ditto AMZN.
NFLX is waterlogged below its 200 day after a massive Earnings Gap.
FB and GOOG show 1 2 3 Pullback setups toward their 20 day moving averages.
If they relinquish the 20 day, more down ducks will be lined up.
In sum, it’s not the earnings or any other news that counts, it’s the reaction to the news.
It’s the singer, not the song.
The tune of the market after earnings on many key names in this earnings season tells us that big money doesn’t want any more and is selling into strength.
After all, it’s the stock, not the company, it’s the market, not the economy that we’re trading.
