Is this market rally just getting started, or is there some clear signs revealing themselves that this could be built on a house of cards? Well, as always, you needn’t look much farther than the charts to see what clues are being left behind for market participants.
When it comes to the Nasdaq (NDX), if you were to look at the chart, ignoring any patterns that were created, you would simply see a market that is on a tear. However, once you start to move past that base level analysis to see what’s going on under the hood, you’d begin to see something you may not be so confident about.
Students of mine are all too familiar with a rising wedge formation. This is often a bearish signal that forms just as a stock, or in this case, an index is ready to give us some kind of pullback, the size of which is the only truly unknown piece of this puzzle.
How do we know this? For that we can move our attention over to the S&P (SPX) to see how this formation has played out in the past. In the video, you will see many rising wedges that have taken place in the past on SPX and the resulting move. This formation, as we can see, has usually led to a pretty significant pullback in price. The only question that remains, is will this bearish pattern be confirmed on the NDX?
The answer to that will only be revealed to us as time progresses. However, this is still a great lesson and something my students and I will keep an eye on closely so as to not miss out on any of the upcoming moves. Be sure to watch the video below for the full breakdown.
To learn more about this setup, as well as how my students and I plan to trade it, join my Smart Trades options trading service today! Smart Trades is where I teach my students how I trade options on some of the largest ETFs on the exchange. As you learn, you’ll get exclusive access to all my trades with notifications any time one is put on. Now, you can learn how many use this high-income skill to achieve financial freedom. Join today!
Good Luck With Your Trading!
Christian Tharp, CMT
This post was originally published on Wealthpop