The Nasdaq 100 ETF QQQ is displaying concerning signals, with bearish momentum divergences and weakening breadth indicators. How might this impact the stock market’s future? Let’s delve into the 50-day moving average, Chandelier exits, and Fibonacci retracements to predict potential downside risks for the QQQ.
Bearish Momentum Divergences
Among the plethora of charts signaling bearish momentum, the QQQ has emerged with prominence. This divergence occurs when price trends upward while momentum indicators point downwards — akin to a train losing steam at the peak of a hill. Such weakened momentum often signifies the end of a bullish phase, signaling exhaustion among buyers and limited upward potential for the markets.
Breadth Conditions
While market breadth conditions have been relatively positive in the past, the last ten weeks have seen a significant deterioration. The Bullish Percent Index for the Nasdaq 100, based on point & figure charts, plummeted from 90% to below 50%, indicating a sharp drop in bullish signals among index members, including major players like TSLA and AAPL.
To gauge a potential corrective phase in the Nasdaq 100, monitoring the 50-day moving average serves as a simple yet effective starting point. Currently residing slightly below the previous week’s closing price, a breach of this level could indicate heightened risks of further price erosion.
Dissecting the Technicals
While the 50-day moving average offers a basic insight, the Chandelier Exit system offers a more intricate trailing stop mechanism based on Average True Range (ATR). Observing past price behavior, violating the Chandelier Exit often heralds the conclusion of an uptrend and the onset of a corrective phase.
As the QQQ hovers marginally above this crucial trailing stop following a recent drop, investors are closely watching for a breach that could signal further downside potential. Employing Fibonacci Retracements to pinpoint potential support levels, initial downside targets around $408, $395, and $382 have emerged, aligning with historical swing lows and significant price points.
Amidst recent breakdowns in mega-cap growth stocks and concerning technical signals for the Nasdaq 100, adeptly navigating market shifts using technical analysis remains pivotal. By staying vigilant on trailing stops and critical support levels, investors can better weather potential market turbulence ahead.
RR#6, Dave
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David Keller, CMT Chief Market Strategist StockCharts.com
David Keller, CMT is Chief Market Strategist at StockCharts.com and President of Sierra Alpha Research LLC, where he helps investors make better decisions using behavioral finance and technical analysis. Dave is a CNBC Pro Contributor and recaps market activity on his show “The Final Bar” on StockCharts TV. As a Past President of the CMT Association, David brings a wealth of experience to his analysis.
Disclaimer: The views expressed here are for educational purposes only. Before acting on any information, readers should assess their own financial situation and consult a financial professional.
The author does not hold positions in the securities mentioned. All opinions expressed are solely the author’s and do not reflect those of any other entity.
This article is contributed content and does not represent Benzinga’s editorial stance. It has not been edited for content or accuracy.
