Nasdaq Ready for the Yearend Reversal



September ends and he does his usual job in the markets: being a bearish month, in this case correcting the excessive rise of the SP500 and Nasdaq, artificially driven by the Fed and the FAMAGs. And October may be a key month for the immediate future on Wall Street. Seasonally, that month is known to kick off a year-end strong bullish rally, but now we are in an election year and no surprise should be ruled out.

Keep in mind the following fundamental aspects, which will define the bias of the market in this last quarter, prior to making long-term decisions. Smart money, hedge funds, and institutions will do the same this week, prior to the end of the quarter, before proceeding with their usual rebalancing of portfolios. If they do, even more so we, the retailers.

1- The US elections in November, which heat up this week with the first Trump-Biden debate. Wall Street does not trust Biden and his economic program. It now prefers, by far, Trump's victory. And investors are also concerned about post-election reactions, for eventual claims of the loser for the vote by mail.

2- Some technical indicators (as speculators positions, below) have been showing exhaustion of the September correction. It's a great contrarian indicator, a buy signal, as large speculators (Hedge funds, trend-following CTAs, etc.) haven't had this much short exposure to major equity index futures in over a decade. They're short about $47 billion worth.




3- COVID is far from over and the outbreaks have been repeating in the same previous order: starting in Europe. Vaccines will not be available this year and markets are watching the advances and falls of its phases. And speculating with this.

4- The stimulus plan for the North American economy seems to be about to be achieved. Both extremes play their cards but they understand that it is something necessary to boost an economy that is not quite taking off, judging by their latest data on services and manufacturing. By the way, this week comes important reports such as Employment, GDP, ISM, and PMI.

5- Also technically the SP500 and Nasdaq indices are forming powerful technical reversal patterns these days, as illustrated in my technical analysis, below. There are the price levels (target/stops) and patterns that I am going to follow carefully this week in the SP500 and Nasdaq, for applying my Price Action AnalysisI think markets are ready for a reversal in October. If the fundamentals help.




SP500 SPX, close $3,298.46


This week the SP500 consolidates, moving in a narrow flat channel (3230-3320). On Friday, the price took a strong momentum that allowed it to overcome the purple downtrend line. On its 1-hour chart, shown below, forms one of my favorite patterns: a double-bottom with a later retest and an immediate trendline break. Bulls need confirmation of this movement through the next price action candlesticks (grey circle).

Targets: 3,290 (SMA200 of its 4-hour chart) > 3,300 (psychological, the key level) > 3,113 (a September support, now resistance) >  3,393.52 (its February high) > 3,420 (its important red uptrend line from February, touch many times since that month) > 3,429 (recent resistance).

Stop Loss: 3,230 (week support, the lower line of current range) > 3,200 (psychological number and also July breakout level, now important support) > SMA200 and psychological 3,000 level.

Price is now testing its crucial 4-hour chart SMA200 and the (black) EMA50, at the $3290 level. If surpasses it with authority, and escape from the channel, it could be the signal for the expected October rally.






Nasdaq Composite COMP, close $10,913.56


Its more clear that the Nasdaq has more stronger signals than the SP500: the double-bottom pattern with a next break of immediate trendline, the Fibonacci retracement 23.6%, and the SMA200-4h in the grey key zone, all of them at 10,800, is a powerful bullish signal. 

Targets: 11,000 (again, the most important now, if it's widely break could be a powerful bullish signal) > 11,600 (6-month red strong uptrend line) > $12,074 (recent all-time high) 

Stop Loss: 10,812 (its SMA200-4h) > 10,790 (Fibonacci Retracement 23.6%) > $10,369 (purple 2-month support, important as it had many touches) > $10,000 (key psychological number and also its Fibonacci Retracement 38.2%)

I will wait for the outcome of the fundamental events mentioned above, to decide my mid-term entry long in QQQ.