The tech sector, largely reflected by the Nasdaq 100 (NDX), has been a relative leader in the equity market for a long time now. Yet, as strong as the trend has been, at some point it will end. We try to stay with the relative strength trends until they are broken. But is there any way to identify when a rally may be hitting its peak, i.e., top, instead of waiting for the trend to be broken? In that hypothetical case, it may allow investors an opportunity to avoid giving back perhaps considerable gains between the time of the top and the point at which the trend is broken.
One tool that we have found to be effective, at times, in that regard are Fibonacci Extensions, which we’ve discussed in the past on a few occasions. As a refresher, these Extensions mark various magnitudes of potential price support or resistance following range breaks, based upon the Fibonacci mathematical sequence. The 161.8% is perhaps the most important Extension, based on the sequence. It signifies a move of 61.8% of the former range – out of the range.
In the case of the NDX, we observe that the index is now reaching the vicinity of the key 161.8% Fibonacci Extension of the major 2000-2002 bear market at 7300.
Now, clearly on a chart of such a long-term scale, there will be some wiggle room above and below that 7300 level. But is this general vicinity a logical spot to expect a major top in the NDX? In a Premium Post at The Lyons Share, we take a look at some other chart analyses in exploring that possibility.
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
The Invesco QQQ (QQQ) fell $1.30 (-0.73%) in premarket trading Thursday. Year-to-date, QQQ has gained 13.05%, versus a 5.11% rise in the benchmark S&P 500 index during the same period.
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