Nasdaq Composite Springs the Bull Trap

US stock market averages tried to emerge yesterday from a two week period of sideways consolidation. We saw the Nasdaq Composite $COMPQ close at new all time highs while the $IWM and $SPY tested prior resistance in their respective ranges.

But today we’re seeing motivated sellers appear and reverse the gains from yesterday while taking out the lows in the process.

To borrow a quote from Brian “alphatrends” Shannon:

with failed moves come fast moves

and with ranges so tight, we need to be on alert that today’s reversal lower isn’t simply a day 1 start to a larger corrective pullback.

A simultaneous break and close below these nearby support levels across the major averages would suggest further signs of caution, while a hold of those same levels would contain the selling pressure.

On the constructive side, market internals continue to remain firm with no real warning of underlying weakness.

Putting all this together, for our strategy and time-frame, tells us we should at least expect more chop, and would be best served sitting on our hands.

We were stopped out of our remaining Biotech long for a loss today which further reduces our long exposure to this market.

Thanks for reading and good luck out there.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 25 years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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