I’m neither a bear nor a bull; I’m a trader, which means an equal opportunity mercenary. Today when the Fed made its announcement I traded the NQ both long and short. And I never looked to find out whether the Fed raised or not. To me, the news, per se, never matters; only the market’s reaction matters.

When I look at a chart, I do my best not to see with glasses of any particular color.  A few days ago I penned a bullish forecast for Netflix (NFLX) from ~$96, where it had excellent Volume Profile support. It printed a high of $107.50 today (Thursday).

But what concerns me now is the 2% decline in Apple (AAPL) on Thursday. Many of the large cap tech stocks have little volume support. The chart of the QQQ shows why: overall volume in the Nasdaq 100 has declined by 2/3 since 2003. 

This puts the QQQ in great jeopardy, perhaps not so much from internal forces, but certainly if any adverse exogenous event of magnitude should occur. I’m not trying to make an inflammatory statement, and I have no position long or short, but honestly, the QQQ is a dry forest waiting for lightning.

The chart with this article enumerates 4 technical points of concern:

  1. the big picture megaphone;
  2.  the lack of volume;
  3.  a 261.8% Fib extension that is now complete; and
  4. a possible Wave 5 completion, as well.

I drew a black trend line through the low and high of the 2009-2015 rally and then drew a parallel. The resulting channel is the wiggle room for the QQQ. It’s a generous ‘DMZ’ within which a normal correction can occur without the index incurring technical damage. Basically, this means that a 20% decline in the QQQ would not represent a trend change. That’s the good news. Bring it on.

However, should the QQQ close more than a few percent below the lower channel line (currently at ~$87 and rising), the uptrend from 2009 will be kaput. In that case, the QQQ will face a close encounter of the ursine kind. I say this because due to the unusual depth of the W4 correction (2007-2009), a bear market of moderate proportions would be highly unlikely. Instead, we would probably be looking at a 78% correction and possibly more.

What could cause this? It would have to be something more toxic than bogus MBS (2008) and far worse than 9/11. In the Nas-crack it would resemble 1929-32 in terms of depth, but it would probably take much less time to unfold given the feedback loops that naturally exacerbate moves in modern electronic markets. No doubt a few doomsday scenarios come to mind that I won’t enumerate here. Whatever is coming, I expect it to strike rather suddenly.

Of course, I genuinely hope I’m wrong about this, but the last time I wrote similar commentary was in January 2001. It’s certainly not time to panic, but keep that lower trend channel in mind. I’ll update it for you every month or so. Stay tuned.

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