It FEELS like the Nasdaq has fallen out of bed, crashed through the floor and into the basement. However, if we take a look at the charts, the selloff and current position looks pretty...normal. In the chart below, we have a clear uptrend channel that the index has been following since June. We hit the bottom support line in Sept, Nov, and now almost again in March. The pattern shown here is pretty clear that it's highly probably the stocks in the index have hit their low and will continue higher in the next month or two. Now, the support line can always be breached. If that happens, we have a trend change but for almost a year now, we've since this channel be the strong technical pattern.
Let's take a look at the Dow. We have a different pattern emerging - a rising wedge. In fact, a rising wedge is a bearish pattern and if it breaks that blue lower support line, the index will likely fall pretty hard. With spending on infrastructure coming into play and a global recovery in progress, it seems like the Dow would break higher but trading has definitely narrowed in the last few sessions so a break either way seems imminent and technically, it should go lower.
Now let's take a look at the small caps and the Russell 2000. Here we have another rising wedge with an added pennant pattern since February. Pennants are continuation patterns where a period of consolidation is followed by a breakout higher. So, this pattern is decidedly bullish. The small caps should continue higher but that break below the blue lower support line isn't great.
And lastly, we have the S&P 500. Here we have a long-term support line with a break lower of the rising wedge, as seen in the Russell. This is bearish - but if the S&P can regain the support line of the wedge, it will likely continue higher.
The main pattern in all of the indexes is consolidation at lower support prices. This could simply mean we're in a seasonal low after the new year and will continue higher in the snapback months of March through May and everything else is noise.
The strongest pattern is the Nasdaq 100 and it looks like the most value is in this index. Some of the high flying tech stocks have gotten sold off hard and there could be some great values. The street says that February comes in like a lion and out like a lamb...but this year it may be the opposite. 🦁