The lagging Nasdaq could catch up because of this…

• Posted by Greg Harmon
• on March 4th, 2016

Both the S&P 500 and the Russell 2000 have shown real signs of strength this week. They have both broken above the bottoming consolidation since the beginning of the year and continue higher. Not quite into the long term bullish mode but doing well and looking like it will continue at least short term.

But the Nasdaq 100 ($QQQ) is another story. The Nasdaq has also risen from the ashes of the February low, but is yet to break out of the consolidation range. It has been lagging the rest of the market. There is certainly a case to be made for sector rotation favoring the S&P 500 and then the Russell, so the Nasdaq might be next. And the chart below gives a sign how.

The chart shows a technical set up for the Nasdaq ETF to rise to new 15 year highs. It is known as a Positive RSI Reversal. This pattern sets up when the RSI falls to a new lower low while the price makes a low but stays above the prior low. Interpret this as momentum rushed out of the Nasdaq again, like in August, but even faster. While the price fell but selling stopped at a higher level. Exhaustion of selling at a higher price, or the start of buying at a higher price.

This pattern looks for a reversal back higher equivalent in price to the prior run up. So overlaying the blue arrow from the February low targets a move to 117.75. No pattern is a guarantee, and this is no exception. But the momentum has shifted to the upside and the price is near a break of that consolidation range. Perhaps the rotation into the Nasdaq will be the trigger.

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