The Scariest Chart
Investors,
There’s only one chart that really scares me right now.
Yes, there are some charts that concern me.
There are others that make me lean bullish.
But this is the one that scares me…
It’s the Nasdaq-100 with its 200-day moving average cloud:
What we know, objectively, is that uptrends are categorized by price trading above the 200-day moving average cloud, as we see from Q2 2020 to Q4 2021 and from Q1 2022 to Q1 2025. Conversely, downtrends are characterized by price trading below the 200-day moving average cloud.
This means that investors can simply use a criteria of “where is price relative to the cloud” in order to diagnose trend and determine proper positioning.
In addition to objectively quantifying the trend, the cloud has historically done an excellent job of also acting as dynamic support — as we see throughout the 2023/24 bull market. It also worked perfectly as dynamic resistance in the 2022 downtrend!
Therefore, my fear is that the cloud will once again act as resistance given the recent breakdown & because it was already used as resistance in late-March!
In fact, I even shared that retest in real-time and highlighted it as valid resistance:
After that retest, the Nasdaq-100 fell -18.5% over the next 9 trading days.
So I’m using the same tactics today that I’ve always relied on, using objective data and analysis to produce conclusions, rather than a dogmatic approach to cheer for what I want to happen.
Of course, I want to see stocks go up (because I own them) and because it would likely mean that Bitcoin is going up even more (and because I own a lot of BTC).
But I won’t let “what I want” prevent me from analyzing “what is true”.
Let’s take this 200-day MA cloud analysis one step further…
This is what truly scares me:x
Look at the breakdown that occurred in Q1’22!
The 200-day moving average cloud was used as a “breakdown, retest, rejection” setup.
Point A = initial low from the breakdown
Point B = initial retest of the 200-day MA cloud
Point C = the lower low (below A) after the cloud rejection
Point D = the next retest of the cloud after the sharp relief rally
Point E = the next lower low (below C) after the second cloud rejection
Now look at the current price action.
We are at Point D, with the threat of falling down towards Point E.
Is this guaranteed to happen with 100% accuracy? Of course not.
But it’s something that both bulls and bears should be aware of.
If you’re bullish, you need to see the Nasdaq invalidate this potentially bearish setup by breaking (and staying) above the 200-day moving average cloud, which is entirely possible.
If you’re bearish, you need to see the Nasdaq-100 reaffirm this potentially bearish setup by getting rejected on the 200-day moving average cloud and making lower lows.
It’s really that simple.
I genuinely don’t know which one is going to happen, but all I do know is to pay attention and then interpret the results as either bullish or bearish, which will either force me to adjust my bias or reaffirm my bearish bias.
The fact of the matter remains: The Nasdaq-100 is trading below its downward sloping 200-day moving average cloud (as is the S&P 500, the Dow Jones, and the Russell 2000). With all of the major U.S. indices trading below this range, that’s a clear-cut and objective sign that stocks are in a downtrend.
During downtrends, asset prices make lower lows and lower highs, which inherently means that bear markets have relief rallies (like the one we’ve just experienced).
Am I shorting stocks here, with the expectation that they will produce this lower high and then suffer a precipitous decline to lower lows?
No, I am long stocks…
But I’m not buying stocks here on the threat of potential resistance within a larger potential downtrend.
And here’s another thing…