The intensity of the downside follow-through after this reversal occurs typically provides some insight into whether it marked a short-term top or is the beginning of something much more significant. The ability of buyers to reclaim control and close that gap quickly, however, would be a data point that reaffirms the uptrend’s strength.
And so the point of explaining all this is because we’re seeing this pattern play out in several indexes around the world, including the Nasdaq 100. Given it incorporates all three of the factors that Equity investors have favored for years: US Stocks, Mega/Large-Cap Stocks, and Growth Stocks…all in one liquid, investable index, it’s no surprise that it was the first to make new all-time highs.
The problem is, in addition to the short-term island reversal in the index, it also closed the week below its February highs…opening up the potential for this to turn into a major failed breakout. The line in the sand is 9,725. Below that level, there’s potential for bad things to happen.