The First Time in Months

With virtually all major US stock indexes at or approaching all-time highs it may seem blasphemous for me to bring up the possibility of a correction. Especially if I am talking about investors beloved Nasdaq 100 index, the past 2-year sector best performer. But I will risk the hate mail, scud missile threats and worse yet, derogatory White House Tweets to outline what I see may be developing anyway because hey, it’s only a possibility.

As you can see in the daily chart of QQQ, the Nasdaq 100 index, price has formed, the first time in many months, a topping pattern. In this case a rising wedge. Because all corrections (or, gawd forbid, reversals. Remember them?) require a topping pattern, when they do appear (or in development) they should not be ignored. What is likely obvious, the pattern has not confirmed (only 4 touches whereas a minimum 5 is required or broken below support) and could easily be negated if price were to hold above the lower support channel. If on the unlikely chance it does confirm by breaking lower, the pattern’s price target is at T1) below, while just below that is the rising 200 day moving average and immediately below that is an open, unfilled gap, T2.  Any of these are areas of logical support and a place where any pullback (I think I was 12 when the last one occurred), if it were to happen, would find support. It’s also noteworthy to mention the negative RSI momentum divergence in the upper pane.

best san ramon cfp investment advisor and fee only independent certified financial planner 9-25-17 QQQ .png

I know some of you are yawning out of boredom since this “potential” correction is a whopping 5-8% and the sneers of “bring it on big boy” are bubbling from within. But because of its importance to the US stock market, a pullback in this Nasdaq 100 index would likely be the catalyst the overall market uses to do the same. With seasonality still in the bears favor and the charts of some of the top 5 Nasdaq 100 stocks looking rather ill, now is as good a time as any. But not to worry, we are in an uptrend and each and every pullback is being bought. Heck if 2 nuclear blasts and ICBM’s cant rile the market I don’t know what can. Bottom line is any pullback is a buying opportunity as we are setting up for what I expect to be a healthy year-end rally.