Why the Market Rejected the Nasdaq's Recent All-Time High By Larry Benedict, editor, The Opportunistic Trader Just over a week ago, the Nasdaq hit yet another all-time high. That level represented a 17% gain since its January low. And it was a 35% gain from late October when the current rally began. But earnings are now behind us, and interest rates are stuck on hold. So it’s unclear which catalyst will drive the market other than the daily flow of economic data. That’s going to lead to bigger swings – especially with valuations stretched and the market priced for perfection. That’s why I said last week that this market is going to reward savvy traders… The trick is to recognize subtle changes in the charts and be ready to capture any reversals. So today, let’s look at the recent action in the Invesco QQQ Trust Series 1 (QQQ). As you know, we have a QQQ put option position that expires on July 19. A Bearish Pattern QQQ steadily rallied through March before retracing in April. Then it rallied again right up to its May 23 peak: Invesco QQQ Trust Series 1 (QQQ) 
Source: eSignal Click to Enlarge Yet where will QQQ head from here? In the chart, we see a common diverging pattern that often leads to a reversal. It’s a pattern I speak about a lot… QQQ made higher highs up to its peak while the Relative Strength Index (RSI) was flatlining. The RSI’s fall toward support (green line) has since pulled QQQ off its highs. Additionally, the blue MACD line is crossing the orange Signal line. A continuation of this down move will add greater impetus to QQQ’s fall. And beyond these signals that I talk about often, something else on the chart caught my attention. The day QQQ made its all-time high (brown arrow), there was an extremely bearish daily pattern. QQQ gapped up strongly on the day’s open, which typically pulls in more buyers in a bull market. But instead, QQQ reversed strongly, closing the day just above its lows. Take another look: Invesco QQQ Trust Series 1 (QQQ) 
Source: eSignal Click to Enlarge It’s easy to dismiss a single day’s price action in the context of a larger bull run – especially one as strong as QQQ’s since October. But this action in QQQ does not reflect just any old stock. It represents all the stocks in the index. So the aversion to another new all-time high was broad-based across the whole Nasdaq. And given the influence of the Big Tech stocks within the Nasdaq, it suggests that buyers are balking at their prices. That’s why we’ve seen recent pullbacks in heavyweight stocks like Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT). QQQ tried to rally over the following two days after that reversal. But it only made a lower high before rolling over. That’s another bearish signal. So the market rejected a new all-time high on May 23. And that coincided with the RSI reversing from overbought territory. What does that mean for us? Buyers Are Nervous While a reversal alone is not enough to ensure a pullback, it does show that buyers are nervous. Add in the retreating RSI and MACD crossing lower, though, and a picture starts forming. Incidentally, this reversal has coincided with the VIX Index moving higher. (The VIX tracks volatility.) To be fair, that was coming off a low level. But if volatility ramps up, that will add yet more weight to any retracement. And that will help our QQQ put position. We’re still well behind in this position. But there’s still time for this option to play out… and the signals are turning in our favor. I’ll continue to monitor this trade and our ProShares Bitcoin Strategy ETF (BITO) put option closely. And I’ll always let you know the moment we need to take action. Regards, Larry Benedict
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