Nasdaq Update – Expanding Ranges
It still makes me feel a buzz when I consider in 2021, I can trade markets with rules that were designed decades ago and in some cases 80 years ago, in a market that many in the early part of last century would not have been able to visualise or conceive.
The Nasdaq in 2021 has offered us some insights, some learning moments, and even more so some great trading opportunities. It’s clearly a market-leading index with the bulk of the tech darlings situated on that exchange. If we think Tesla, Apple, Facebook, and Microsoft we get a collective of stocks that are now worth multiples of global markets and larger revenues than some countries generate via their GDP. Likely for even Gann and David, this would have been hard to conceive when they were plying their trade. From my own viewpoint, I am constantly amazed by the leaps forward they are making. As many would say based on the current trajectory of innovation, there will be so much more to come.
If we look back to my article in October, I discussed the notion of ranges and the “position” of the market. We had seen the 7th of September as a swing top and a progressive sell-off and examined if the ranges to the downside were in balance or potentially expanding and could be the beginning of a more considered downtrend and if shorts were an option to profit. The last part of the article suggested looking at the May low and October low to see if they were repeating in a way that could be useful. For those that put in some work you will no doubt have seen some harmonies that supported the long side. My trading mindset always drives me to test what I know and what I believe, I can say with hindsight now that my bullish sensor was on red alert when I penned the article last time out, but we must test all our positions and beliefs with data otherwise we can fall into the trap of trading on gut feel. This can work but it will not work forever, so we must weigh up all options.
As it happened, the market did not push any lower than where the price action was last month. From there we saw a first higher bottom opportunity but not in the case of a straightforward ABC pattern. The A to B range was contracting compared to the previous swing in the same direction, so it would not appear in the Hi Lites. For me it was a simple first higher bottom of support and just inside 33% in using the manual Pressure Points Tool. (see Chart 1)
Chart 1 – Nasdaq Daily Bar Chart
There was a variety of strategies that could have been applied to the entry, confirmation of the first higher swing bottom, Closers Rule on the 13th of October and the Openers Rule on the 14th. This all assumes some intraday activity, and this could have been used further to reduce entry risk as needed, but I will keep it straightforward for now with a 2-day swing chart entry.
Chart 2 shows basic positioning and approximate risk for the e mini contract. There are micro and CFD instruments that could be utilised as well, based on experience and account size.
Chart 2 – Nasdaq Daily Bar Chart
As we know we are always looking to maximise the Reward to Risk Ratio and we should be looking for multiples of our risk. Chart 3 it expands out what was an enjoyable ride for the bulls. This also did not create too many stop management issues. The final exit target employed using the November seasonal time frame as a date to watch, with stops just behind the low of that day.
Chart 3 – Nasdaq Daily Bar Chart
With a Reward to Risk Ratio of 7 to 1 this move is one that many might argue you could still be in if trailing stops were more aggressive i.e. further away from the market. The study of November as a month on the Nasdaq will offer some insights into that thinking. A look at the bigger picture also suggests this current move will need to clear out some resistance first before it can head higher but there is a distinct chance that based on previous moves a run into December / January is possible.
Chart 4 – Nasdaq Daily Bar Chart
With my equity market thoughts in the current cycles, we are very much in a strongly trending market but it’s hard to suggest it’s anything but in the Winter of what has been a historically strong market and all good things will eventually come to an end. To that end, I am working on keeping profits where they have been generated.
This market has delivered for those that have put in the work in 2021, the learnings this year it has offered have been a valuable real-time way to understand your toolbox of strategies on a strongly trending market.
Good Trading
Aaron Lynch