Where to Next?

The NASDQ 100 Index has just broken above an important level and we should see in short order, what the market has in store for investors.  Here is the daily chart and three possible roadmaps for the tech market …

NASDQ 100 Index ETF (QQQ) – Daily Chart

The April 18th pivot high for the QQQ was $167.00 … that level was taken out with today’s price action.  By doing so, you have taken out an obvious prior high/resistance level, and one that the entire market will take note of.  Many algorithm trading programs will attack breaks of obvious resistance/support levels, and that is why you often see the market break to new minor highs/lows before reversing.  In essence, the market traps traders playing the initial break, and you see those “weak hands” get rinsed out of their positions by the stronger, more sophisticated trading entities.

So basically, now that price has broken above the prior resistance level, we are either going to fail and reverse, or we are going to gather momentum, and have the MOMO traders jump on this latest move and we should gain steam as we march towards prior major highs.  I have labeled this bullish scenario as #1 on the above chart … the move off of the last low will need to push through the “ABC” extension target zone of $170.05 – $173.69 if we really are headed to new highs.  Typically, I would expect for price to make a new minor high, and then pull-back slightly to test that break – if the move is real, it will trap sellers at the high and steamroll through them.

Scenario #2 is the bullish scenario I would rather see unfold … in this case, price will fail at this break of a prior pivot high and head down to SLOT support.  From support, price would begin moving higher thereby trapping traders who think that a Heads & Shoulders pattern was about to confirm and price was about to head lower.  It is this outsized opinion and short position that fuels the bigger, more sustainable move to new highs.  In essence, bigger corrective moves prior to an attempt to break higher usually leads to a higher odds chance of that break succeeding.

For the possible bearish scenario, (Scenario #3) I would think that we need to fail here as price moves above the obvious prior minor high, likely in the extension target zone.  Price would then correct lower and slice through minor SLOT support at the $160.92 – $156.86 level.  As price breaks below the prior lows, there would be an outsized chance that price was just setting up an even bigger squeeze that could fuel a move higher, but more likely, this type of move would signal some bigger corrective pattern or even the beginning of a bigger trend lower.

Bottom Line … in any of these case, traders should be paying close attention to closing daily and weekly charts to see what type of move is confirming itself.  I will try and update what I see as we go along.

Also, note that my charting software is painting the past 4 daily candles yellow, which visually warns me that trend strength has contracted to the point where trend was now officially in the “Contraction” zone – what follows contraction?? Expansion does … should be an interesting next couple of weeks/months.

Cheers … Leaf_West

COST Update …

Earnings for Costco aren’t scheduled to be released until May 24, 2018, but COST’s stock looks like it is ready to break higher out of its latest consolidation pattern.  Here are the charts …

COST – Daily Chart

Everything on my chart indicators points to COST making a move higher here … I am long June monthly call options and plan on trading the stock going forward here as it begins to get some mojo.  Here is a closer look at the break higher with the 195-minute chart.

COST – 195 Minute Chart

Cheers … Leaf_West

Has the Next Leg for Bonds Begun? …

When you look at the weekly chart for bonds, you have to think that maybe, just maybe, the great Central Bank manipulation to global interest rates is coming close to the beginning of the Great Unwind.  Here are some weekly charts to ponder …

20-Plus Year US Bond ETF (TLT) – Weekly Chart

Price is still contained within the weekly downward broadening price pattern … we are in the middle of the 7th consecutive “contraction” warning signaled by my software painting the weekly candles yellow.  What follows contraction?  Typically it is a new expansion phase …

The Price Momentum indicator has shown that price has been in a squeeze for 16 consecutive weeks, which is pretty unreal, and almost all bond portfolio managers are likely fast asleep at the wheel and not prepared for what is going to happen next.

The Moving Average Spread Indicator is looking like it wants to make a second, lower cross-over, which typically is the sweet spot where the best shorts are made.

Where is support for price inside the weekly broadening pattern?  It is around $106.50ish … which is about 14% lower than yesterday’s close.

What would a 14% drop in bonds mean for all those equity holders who are maxed out with their margin accounts??  Probably a little bit of pain!!

Cheers … Leaf_West

Have we Hit a Low in Inflation & Interest Rates?

One of the biggest items impacting the stock market the past several years has been all-time or near all-time low interest rates and by definition, low actual and expected inflation rates.  Eventually this long, long trend will end and we will begin on a new leg of rising inflation.  What will cause that is any one’s guess.

Soybean ETF (SOYB) – Weekly Chart

The long-term trend in Soybeans has been lower … eventually, supply and demand forces will reverse that trend.  The weekly chart has been in the condition of contraction in terms of trend strength, the past 7 weeks.  Any squeeze higher will possibly break a multi-year downtrend and possibly be a coincident sign of a generational low in inflation/interest rates being made.

Cheers … Leaf_West