NASDAQ: Bullish Reversal Or Bull Trap? (Update)

(Click On Chart To Enlarge)

From November 16, 2008

"...but a bullish divergence in an indictor without price confirming it is meaningless unless/until price does confirm it. I put that in boldface because it took me a long, long time to learn that, and it cost me a lot of money."

Last weekend, we had what "looked like" a Bullish Reversal in the NASDAQ and other indices, accompanied by a BIG positive divergence in the MACD (Chart #2), but we knew to be cautious and to look for price to confirm the bullish-looking MACD signal by holding support (the November 13 low), and then going higher.

Nope. The NASDAQ rolled over to the downside and on Wednesday, took out the November 13 "reversal" low and also broke and CLOSED below the lower trendline, which was a validated trendline (3 "hits" to that trendline). The MACD simply rolled over to the downside with price. Oops! BULL TRAP.

As the chart stands, we've now got the "possibilty" that the break to the downside is a BEAR TRAP, a Wolfe Wave 5 Fakeout/Breakdown. The NASDAQ closed right below the pattern, the bottom of which was validated support as of the November 13 third "hit" and upside reversal.

"Former support 'should be' resistance on any rally," so we'll see if the NASDAQ can CLOSE back above that lower trendline, hold above it and then move higher, springing a BEAR TRAP.