A key to success in investing is paying attention to logic and good opinions. But don’t forget price action.

There’s a trade war heating up. There are disappointments in negotiations with China. The Europeans are upset. Closer to home, Canada and Mexico are indignant. Common-sense logic would say that the stock market should fall, but the Nasdaq Composite Index COMP,   is breaking out of a congestion zone. Let’s explore with a chart.

Chart

Please click here for an annotated chart of the Nasdaq 100 ETF QQQ.  The Nasdaq 100 NDX, is acting stronger than the Dow Jones Industrial Average DJIA, and the S&P 500 SPX. For this reason, the chart shown is not of the popular S&P 500 ETF SPY, or DJIA ETF DIA.  Please note the following from the chart:

• The chart shows the congestion zone with a rectangle. The congestion zone signified the struggle between bulls and bears with neither side winning.

• The chart shows a breakout from the congestion zone. This indicates that the bulls are temporarily winning the battle.

• Overhead resistance is nearby, as shown on the chart. This means that it is not prudent to buy aggressively here.

• The chart shows that the breakout is not on high volume. This indicates that institutions are skeptical.

• The chart shows that the relative strength index (RSI) on the breakout is not higher than the prior high. This is a negative.

Of note is that the Russell 2000, represented by ETF IWM, is also strong. Please see “This breakout in stocks means the bull market isn’t about to end.”

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

What to do now

The Arora Report recently decreased cash allocations and hedges prior to the breakout shown on the chart…Read more at MarketWatch.

 

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