Beware of the Weekly Bearish Engulfing Nasdaq 100

A quiet start to the Tuesday morning session progressively turned bearish as large cap technology and healthcare/biotech stocks saw selling pressure increase throughout the day.

The Nasdaq 100 is composed almost entirely of these two sectors so naturally it was hit the hardest.

As of the close today, here is what the incomplete weekly candle looks like:

There are 3 bearish characteristics to point out:

1. A bearish engulfing weekly bar will be printed if we close below 139.28.
2. Volume is not shown, but of all recent bars, the down weeks are all on above average volume.
3. A lower high (failure to make it up to re-test early June highs), is in the works.

Now that may all sound very bearish but let’s keep in mind, historically for 2017, large range sell days and multi-day sell-offs like this have proven to be great opportunities to buy the dip.

Let’s take a look at the S&P500:

We can see at the close of today’s session we are right back into support (early June lows) making the reaction over the next few days very important to monitor whether or not dip buyers show up again.

Now let’s take a look at the Nasdaq 100 daily chart:

We can see very clearly the lower high from Monday’s gap up failure on this chart, and similar to the SPY we are coming into re-test the early June area of support.

Also note, if we take a measured move from the early June swing high to low and project it down to this recent leg, it gives us a potential target of around 136, which would be the lows from the mid May sell off.

Given the developments this week, bears are picking up momentum to the downside, however there are nearby support levels right under both the S&P500 and Nasdaq.

As for how we’re positioned and playing it, we are very light and marginally net short with just two positions on.

A long position in Citigroup from last week ($C):

Took $C long into the close, half size position.

— Evan Medeiros (@evanmedeiros) Jun. 22 at 02:54 PM

And a short position in the QQQ’s via $SQQQ we entered on Monday:

put some $SQQQ on today. Entry 30.25, stop 29, first target 31.75 gap fill. (still holding couple of long positions on, not outright bear)

— Evan Medeiros (@evanmedeiros) Jun. 26 at 03:33 PM

$SQQQ sold 40% 31.80 +4.5% from yesterday’s entry. Tighten stop and trail remainder.

— Evan Medeiros (@evanmedeiros) Jun. 27 at 11:22 AM

We took some profits in SQQQ today, got stopped out of our remaining TLT runner, and exited a long position in BYD.

Thanks for reading and good luck out there.