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Nasdaq Seriously Overbought! Time to Worry?
By, Simon Maierhofer
Thursday July 20, 2017
The Nasdaq-100 has been the most predictable of the major indexes over the last several weeks. Here is what made the Nasdaq-100 (represented by QQQ) predictable and whether its deeply overbought condition is reason to worry.

In late June we temporarily simplified our approach to market forecasting. Why? Every major index did its own thing. This non-sexy, but effective approach was explained here.

The June 29 Profit Radar Report stated that: “As long as the S&P 500, Nasdaq and NYSE Composite remain above support (particularly 2,400 for the S&P), we will allow for another bounce.”

Barron's rates iSPYETF as "trader with a good track record" and Investor's Bussines Daily says "When Simon says, the market listens." Find out why Barron's and IBD endorse Simon Maierhofer's Profit Radar Report.

The S&P 500 never dipped below support … and is at new all-time highs. The Nasdaq-100 is also at new highs, and seriously overbought. Is it time to worry?

Most Transparent

Interestingly, the Nasdaq-100 pattern (as represented by the QQQ ETF) has offered the most discernable pattern.

After the massive June 9 red candle (which occurred red at Fibonacci resistance – 143.55) ), the Profit Radar Report stated: “The Nasdaq-100 painted a bearish reversal candle today. Every red candle high (since October 2013) saw lower prices at some point over the next 1-2 weeks. Next support is at 137.20 and 135.70.”

4 weeks later, QQQ arrived at 135.70, and the July 9 Profit Radar Report pointed out that: “The a-b-c decline unfolded as projected, and at Thursday’s low, the QQQ may potentially have finished wave c down. A bounce/rally seems likely.”

Seriously Overbought

Fast forward another 2 weeks (and 6.2%) and QQQ is once again at new all-time highs.

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Although trade has made it above Fibonacci resistance (now support), based on RSI-2 the Nasdaq is seriously overbought with a bearish RSI-35 divergence. Trading volume on up days has been lighter than on down days, which is reflected in the bearish on balance volume divergence.

Perfect Storm (or Tempest in Teapot?)

Additionally, the S&P 500 is nearing our long-standing up side target (2,500+/-) set a year ago.

The comprehensive stock market update explains why we don’t expect a major correction (yet), but now is not the time to chase stocks. Protecting profits and perhaps taking a stab at some LOW-RISK short positions seems appropriate.

Continued analysis along with low-risk trade setups are available via the Profit Radar Report

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron's rated iSPYETF as a "trader with a good track record" (click here for Barron's profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

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