Yesterday the market started off with solid gains, building on the solid upward action of last. However the upside came to a head and then a shoulder, before pulling back into the afternoon. When all was said and done the S&P500 ended up basically flat on the session. The Nasdaq however had run into a level of resistance I was looking at early in April. One that looks ominous when viewed from a longer time frame.
In early April I noted a possible reversal was looming, with the ultimate rally coming to a rest around $170 on the $QQQ.
and $160 on the $IWM.
Yesterday we got both, with $IWM actually painting a new record high by $00.07.
This morning $IWM is at $158.50 and $QQQ at $168.45 - a rather vicious reversal from yesterday morning. Whats concerning is the possible QQQ topping pattern. Remember back in Janurary the Nasdaq put in a nice little head and shoulder topping pattern.
You can read about it here:
That head and shoulders pattern yielded a nasty decline.
Yesterdays reversal started with a small intra-day head and shoulders pattern.
and look what happened next......
Here we are months later with a much larger head and shoulders topping pattern possibly forming.
We've numerous over- hyped topping patterns every step of the way to fresh record highs. And perhaps this one will get tossed to the curb in the weeks and months ahead just like the ones before it.
For now the price action conveniently came to a halt exactly where it needed to for that right shoulder to start forming. The market has been pulling back sharply from that level. The next step would be a move to the neck line at $QQQ $155.
While its far too early to be calling tops, this pattern bears close watching in the weeks ahead.