NASDAQ: Triple Breakout

From January 1 post:

"The Bulls still need to knock out 1603."


The smaller Ascending Triangle (in purple) broke out on Friday morning at 1590; the larger Ascending Triangle (in green) broke on Friday morning as well, crossing 1603, so combined with the breakout of the Bullish Falling Wedge (in blue) on December 16, the NASDAQ has broken out of three patterns to the upside. The upside targets are listed on the chart.

A word about targets: they only are what the pattern measurements off the breakouts "suggest" that a stock or index is aiming for, and by no means are any sort of guarantee. But, unless/until the breakouts get reversed to the downside (a CLOSE below the breakouts), the targets are IN PLAY.




The 55/89 RSIs did a fine job of leading price by breaking out of their respective Ascending Triangles on December 16. During the year-end pattern consolidation while the NASDAQ was searching for "Data Point #4," (see my prior post on that subject), which concluded with the Ascending Triangle (in purple), the 55/89 RSIs went into Bullish Synchronicity TWICE. As I mentioned in a prior post, that kind of compression at synchronicity can result in a nice move, once the energy is released. The NASDAQ finally put in the Data Point #4 low that we were looking for, at 1493 on December 29, then it rallied just under 150 points.



Moving down in the Fibonacci sequence, the 89/144 RSIs also have broken out above their respective Ascending Triangles, but they're currently at Bearish Synchronicity, meaning that their readings are very close, and that they're inverted, with the 89 RSI still positioned below the 144 RSI.

If the NASDAQ should reverse here at Bearish Synchronicity and take out the 1478 and 1493 lows of the purple Ascending Triangle on a CLOSING BASIS, that certainly would give a very strong suggestion that this Triple Breakout was a fakeout. Volume was weak on Friday's breakout, but we'll next look at an example in which weak volume ultimately didn't matter very much as far as getting a very tradeable rally was concerned.




On April 1, the QLD had an upside gap and a breakout out of a Bullish Inverse H&S (in blue). Look at the volume on the breakout (first blue arrow on the volume chart). Horrible. The QLD rallied for a few days, establishing the neckline of a larger Bullish Inverse H&S (in purple), then it had a rather wicked decline, back to fill the April 1 gap.

Notice that the low of the Right Shoulder did NOT get violated on that selloff, and that the selloff gave everyone a chance to get "beared up," which is the purpose of a good Bear Trap. The QLD gapped away again, and then gapped out of the "nested" Bullish Inverse H&S patterns on April 18. It went on to score a 33% gain over the next 6-7 weeks off the 69.63 Bear Trap low.

Look at the volume on the second breakout (second blue arrow). Not horrible, but pretty lousy. And, look at the volume on the ensuing rally. Lousy. But, despite the lousy volume, the first Bullish Inv. H&S target of 86.94 got MADE with no problem, and roughly 85% of the 94.77 larger Bullish Inv. H&S target also got MADE.

The second target is a great example of how targets are "what we're aiming for," but that they don't always get MADE. There's no ALWAYS in the stock market, but that rally was a nice one, and there were lots of clues at the final high of 92.55 that the rally was in trouble, and plenty of chances to get out with a gain:

1. The DOUBLE negative divergence in the MACD.
2. The "Kiss of Death" in the MACD (failure from below the signal line).
3. The eventual break of the Rising Channel (in red).
4. The eventual break of the Double Top.
5. The failed retest of the broken channel.
6. Increased volume after the channel retest failure, etc.