Originally published by Guppytraders.com
Those who were forecasting an imminent FANGS-led crash in August have been disappointed. However, now we are entering the dreaded month of October, famous for its market crashes, are we closer to a Nasdaq crash?
The short answer is no. Buts it’s the detail that gives confidence in the answer.
There are three defining features on the Nasdaq chart. All of them suggest that talk of a new is unjustified. These features help define how far an October pullback could fall and the conditions that signal a good entry point for a continuation of the uptrend.
The first defining feature seen on the weekly Nasdaq chart is the consistent trend strength shown by the Guppy Multiple Moving Average (GMMA) indicator. This indicator captures the thinking of investors and traders. The consistent wide separation in the long term group of averages confirms strong investor support for the trend. It's been a feature of the Nasdaq since late 2016.
The second feature is the degree of separation between the short term and long term GMMA. The chart shows steady and consistent separation with trading activity having essentially no impact on underlying investor confidence. The probability of a rapid trend change is low. The probability of a rapid rebound following a dip in the index is high. Traders are alert for a repeat of the rebound behavior seen in April 2018.
The third feature is the simple but effective trend line. The line starts in mid- 2016. It was briefly broken in April 2018 but since then the line has regained its role as a support feature for the rising trend. The trend line is a key signal point for a retracement as a fall below the line shows weakness in the current trend.
All of these features suggest a high probability the uptrend will continue. This combination of features suggest the Nasdaq could fall to below 7700 and still remain in a strong uptrend. Additionally there are no end of trend features on the chart. There is no evidence of a double top, a rounding top pattern or the development of a head and shoulder reversal pattern.
This behavior suggests that any pullback in October is most likely to be temporary and offer a buying opportunity from the long side.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.