Is NASDAQ in an up channel?
Today’s date is April the 26th 2021. Happy Monday, everybody. And behind us is the NASDAQ-100. So today, as we’re going through the markets, we found something that we didn’t catch before, and it completely changed the overall analysis of the NASDAQ. So prior, if you watch our previous videos, we were monitoring this up channel, which was here. This low, this low, future low, this U-turn, this high, this high. So we were anticipating that NASDAQ was going to dip bearish. But then we realized and we saw, well, wait a second.
Why is NASDAQ having a bullish day?
And so that got us thinking, “Well, let’s go ahead and erase all of the analysis. Let’s start over.” And sometimes that’s what you got to do when it comes to trading. Sometimes when you apply your analysis, everything looks great and everything’s perfect. And it makes a lot of sense. But if the market’s not reacting to your analysis, to your forward projections and whatever the approach you utilize, you got to ask yourself the question, “Well, why is this?
What are we missing? What’s going on?”
And so as we ask that question, “What are we missing? What’s going on?”, we were able to discover a major U-turn level. And one of the things that we’ve noticed when it comes to trading, that markets tend to U-turn at, on, and, or around the same price points. Now, remember with NASDAQ, a full E-mini contract, every tick’s worth about $5. And with a Micro, every tick’s worth about 50 cents. So make sure you trade with good risk management if you do decide to take action on this one. Remember, if you risk too much money in a single trade, you can lose too much money in a single trade. So we’ve got this blue line and you have a U-turn, U-turn, U-turn, U-turn, U-turn, U-turn, broke through it, found resistance, U-turn, rallied above and could find support.
So if you look at the analysis, one, two, three, four, five, six, seven, eight, nine, 10. Out of 10 times that the market has touched this blue line, it has U-turned the market eight out of 10 times, which means this level has U-turned the market about 80% of the time, which makes that a very powerful level. So we went ahead and we plotted some Fibonaccis on here. And then when you look at the Fibonaccis, you have one, two, three, four, one, two, three, four. If the market were to U-turn right now, which it shows it could, then we’re going to expect the market to go to 14955.50, which is basically a big jump. That is about 3,500 ticks away. And with the full contract, an E-mini contract, that’s about $17,500. With the Micro contract that’s 1,750 U.S. dollars. So absolutely worth our time.
Now there’s a couple of ways that we could trade this. The position style is simply putting your stop below this U-turn, buying and holding on the way up. Another way is to control risk, which I think is a very popular idea. We can go to a smaller timeframe, such as a one-hour timeframe, and we can look for structure. And if we have a bullish structure, we can make a decision on how to take advantage of it. Now we do have this upward channel off of the one-hour timeframe. But what I want to do is, I want to draw it out, because normally when I draw it out, it tends to make sense for a lot of people.
Market Begins to obey
So we’re going to start out with a basic channel and you can begin to see that we have a bottom of support and we have a height of resistance. Now, when we draw this channel, you can begin to see how the market begins to react and how the markets begin to obey. So what ends up happening is when we get to a level like this, some people, what they will do is they will buy the bottom blue level, take profit at the top level, and then they sell the top level and they try to take at the bottom blue level.
What I have found is that when you focus in on buying the bottom blue level and taking profit in the top blue level, and then staying out of the market and then buying the bottom blue level, what I’ve discovered is if you can forego trying to trade the retracement, you tend to win more trades and you don’t get stopped out as much. And here’s the reason why. Sometimes the market will kind of hover at the top blue level. It’s not perfect U-turn like I drew out, sometimes it’s a lot of false reversals and it’ll consolidate and then it’ll drop out of nowhere. And so it can be very challenging trying to sell against the trends. So I’m a big believer in saying, “Hey, you know what? If the direction is up and the buyers are in control, we should look to buy the bottom blue level, take profit the top level. Buy the bottom blue level, take profit top level, buy the bottom level, take profit top level.”
So while we’re at the top level, we got to stay out, right?
And so in this scenario, there’s really two scenarios or two areas where I would actively look to trade. The first scenario… And why is that? What I’m trying to do, and what I’m trying to teach here is, I think it’s very important that if we generate success, if we find success in the markets, that we do it in a sequence that’s repeatable. Because for most people, when they’re trying to find success when it comes to trading, they’re doing it for a purpose, right? They’re doing it for a monthly income to build a nest egg to… I don’t know. But whatever the reason is financially, you want the income to be sustainable. You want it to come in month over month, quarter over quarter, year over year, if possible. And the only way that I’ve been able to really teach that in other people, is by saying, “Hey, just whatever you do, if you made money today, great. Just understand what you did so you can do it again.”
So if we’re buying the bottom blue level, a simple thing would be to wait for the market to fall back down and then look for the U-turn to buy it back up. Like so. Right? So we would repeat success. That’s a repeatable process. The other scenario would be to simply wait for the market to break and close above the top of the blue level, retest the backside of the blue level. And then if you can find a low price at a known level U-turn, you’re essentially doing the same thing that found success in the bottom blue level. You’re just bumping it up to the top blue level. And that could push the market up too.
So there’s really two areas where we want to look to trade. And area number one would be something simple. Buy at the bottom blue level, on the way back up to the top blue level. And then area number two would be, if we break above, buy a low price at the known level U-turn. So you’re repeating the process, which can potentially generate success. And so when we take a look at this channel here, what I did is I drew out the two areas which I think an entry would be very beneficial. The first one is just simply waiting for the market to come back down to the bottom blue level. U-turn, U-turn, U-turn. Buy low, buy low, buy low. Right now we’re near the top blue level, realistically a person who’s trading this should be looking to take profits. We need to let the market come back down, form the low price, look to buy it back to the future high price.
Now, if you do go long near the bottom blue level, remember I’m not a CTA, I’m not a money manager. So this is just research and I cannot dictate trades, and I cannot provide customized investment advice. With that being said, according to the research, if somebody buys the bottom blue level after it U-turns, usually counter trendline break, or like a counseling formation, placing a stop in the sell zone, and then limiting out just before the top level has historically been a really smart idea. So you buy low, profit high, buy low, profit high, buy low, profit high.
The second area would be if the market is able to break above the top blue level, come to the backside buy a U-turn level here, and then take the ride up. And that scenario I limit could be utilized in a Fibonacci sequence. So finding the latest Fibonacci extension to exit out or taking a position and basically saying, “okay, if you’re going to buy and hold until 14955.50, which is a Fibonacci extension of the daily, could also be a really good idea.
All right, everyone, this is Joshua Martinez and that’s this week’s idea. This is the NASDAQ-100 E-mini futures.
Comment below
Now, before we end, what I’m looking for is just some basic feedback. What we try to do is throughout the year, we will do our very best to be intentional about posting these on Mondays and finding the latest and greatest trading idea. And not just saying here, do this. It’s to educate, to provide the why’s and say, “Hey, we use a larger timeframe for direction. The small timeframe for entries”. We like to draw out the methodologies so that this process, the transition of understanding the markets can be a little bit easier for those who want to learn this way.
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