If you’ve been looking for a sign, one that jumps out and kind of grabs you by your collar, this is it.
This price pattern, one of the most popular studied and traded, is screaming a top is in.
Maybe it is just a short-term top.
Maybe it is the ultimate top.
That will take some time to tell.
All I know, is right now is the perfect time to be bearish.
Let me explain…
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The chart below is on the Invesco QQQ Trust (QQQ)๏ปฟ, which tracks the widely traded Nasdaq 100 index.
Full of large-to-medium cap tech stocks, this has been an outperforming index as tech stocks led major rallies over the years.
But, as these high growth stocks helped accelerate to the upside, the decline can be even sharper.
Again, this dip may only be short lived, but take a look at this chart and you can see for yourself – a drop is coming.
It’s a head and shoulders pattern.
Clear as day, you can see the left and right shoulder, a head and the neckline in red.
This is set up nicely.
We even had the dip below in September, a test of the neckline last week, and now we are expecting the decline to pick up some speed.
The red arrow indicates a potential move here, which would retrace the rally prior to the head and shoulders forming.
I’m playing this with put options on the QQQ, along with a top stock set to decline within the index, Vodafone (VOD).
I’m also betting on this decline to come sooner, rather than later, with an October 20 expiration.
This market just has that feeling that it wants to drop.
It’s a classic trade after a head and shoulders pattern breaks like this, and we are already seeing this take place in the Dow Jones Industrial Average and S&P 500 indexes.
The ๏ปฟNasdaq 100 is the next one up.
That’s what I’m trading this week.
And it is still ripe for pilling into.
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE