On 01/22/21 the Nasdaq Composite (IXIC) made a new all-time high which was not confirmed by the S&P 500 (SPX) and the Dow Jones Industrial Average (DJI), a bearish divergence. I call this a “Rule of the majority” signal, meaning the true trend is with the two non-confirming indices.
This signal can occur at minor, intermediate or major tops/bottoms. Examples of major top signals are the SPX 03/24/00 final bull market high un-confirmed by the IXIC and the DJI. The next major top signal was on 10/31/07 when IXIC made its climax peak un-confirmed by the SPX and DJI.
Assuming the current signal is effective it could be several weeks before we know the degree of the turn. For now, its another piece of evidence that strongly suggests at least a short-term peak is forming.
The daily IXIC chart courtesy of Trading View illustrates evidence from the momentum and price dimensions.
RN Elliott recommended the use of parallel trend channels to aid in the discovery of wave counts. I used the parallel channel drawing tool on Trading View to create a perfect parallel channel. Note that four of the five Elliott wave points touch or are close to the trend lines. There’s a high probability the IXIC has completed or is near completion of an Elliott five -wave impulse pattern from the important 10/30/20 bottom.
The daily MACD shows bearish momentum on the Histogram. Daily RSI illustrates a double bearish divergence.
The daily Nasdaq – New 52 – Week High($NAHGH) chart courtesy of StockCharts.com illustrates internal bearish momentum.
The rapid decline in 52-week highs indicates the Nasdaq is losing upside moment. The Nasdaq peak in new highs came on 01/14/21. The NYSE new high maximum was on 01/07/21. Both falloffs of new highs were about the same size. The Nasdaq new highs accelerated depreciation hints a rapid decline in price could be imminent.
Traders are short a 50% position in non-leveraged SPX related funds as of the open on 01/07/21. Continue holding short.