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Mish Schneider What are the current opportunities in market reversals?

In this article, Mish Schneider, director of trading research and education at MarketGauge.com, looks at the recent movements of the Nasdaq 100 and the Invesco QQQ ETF, considering the opportunities it might present in the future

­­­On Tuesday, the Nasdaq 100 [QQQ] broke its 50-day moving average (DMA) before the end of day rally brought it back over. This created a reversal pattern we like to call an expansion day.

 

 

An expansion day is formed when a large range day crosses over a major moving average — in this case the 50-DMA.

The pattern shows that large amount of buying was able to push the price over a key resistance/support level with ease.

When looking at the chart of the QQQ you can see that not only did the price clear over its 50-DMA, but it was also able to fill the gap left by Tuesday’s opening price.

Filling the gap is another important level to break as it shows short-term resistance has failed. With that said, the Nasdaq 100 has a heavy focus on tech stocks, which have seen huge runups in price.

The last time this index had any correction under the 50-DMA was about four months ago, in late November.

Though today created a reversal pattern, a visit under the 50-DMA could be healthy for the tech-heavy index.

Small corrections can help the market move higher as it supports a refresh of buyers before the next move up.

A recent example of this can be seen in the transportation sector [IYT], which recently broke under its 50-DMA only to make a comeback to new all-time highs.

Additionally, these types of reversals offer a dip buying opportunity as the price clears back over its major moving average.

Overall, Tuesday’s expansion day pattern shows that buyers still have strength and, with the US Federal Reserve’s support, are looking for the trend to continue higher.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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