In recent weeks, the market has witnessed a series of deceptive movements, oscillating between bullish and bearish tendencies. This volatility, to some extent, was anticipated given the Nasdaq's impressive 48% rebound from January to mid-July. A period of consolidation seems inevitable as the market adjusts to this rapid ascent.
However, a closer analysis of the breadth charts, highlighted in our previous discussions, indicates that the gains of 2023 were driven by a narrow segment of large tech stocks, raising concerns about the market's overall health. This leads us to a pressing question: Are we witnessing a temporary sideways correction, potentially paving the way for a year-end rally, or is a return to the bearish trends of 2022 more likely?
Opinions may vary, but the prudent approach is to closely monitor the market's forthcoming movements. A scrutiny of the NQZ23 (December 2023 NQ contract) chart reveals a distinct Triangle formation, a pattern that often precedes an upward trend in a bull market context. Yet, with the Nasdaq still trailing its 2021 peak, it's premature to declare the onset of a new bull market.
NQ, 4hr
The forthcoming trajectory of the NQ holds significant implications for market predictions. If it breaks through the current Wedge formation and surpasses the 16,000 mark, it could signal a strong bullish trend as we approach the year's end. Conversely, a dip below the 15,000 threshold might indicate a continuation of the current consolidation phase, oscillating between 14,000 and 16,000 levels, or potentially a reversion to the lows witnessed in October 2022, extending into early 2024.
The upcoming weeks are pivotal, holding the potential to significantly shape market trends as we navigate through this critical juncture in 2023.
In light of the current market dynamics, traders are advised to adapt their strategies accordingly to navigate the potential shifts on the horizon. Should the market trend upwards, it would be prudent to concentrate on long-only strategies, which demonstrated remarkable efficacy in the first half of 2023. Conversely, if the NQ maintains its lateral movement or initiates a downward trend, attention should shift towards long-short strategies. Strategies such as Mercury, Altair, and Jupiter are positioned to capitalize on market fluctuations, allowing for gains irrespective of the direction the market takes.
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