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Double top forms on the Nasdaq

HYCM

By Giles Coghlan, Chief Currency Analyst at HYCM


The Nasdaq has formed a double top on the 1-hour chart. Take a look at the chart above for the pattern outlined and the trigger sellers will use for an entry. The potential for a top to form in the Nasdaq was flagged at the start of the week. The heart of the rationale for a possible top was based on this:

'The rationale is based around the ratio between the NASDAQ 100 and the Russel 2000. The ratio between the two indexes is currently at its highest since the last tech bubble around the turn of the millennium in 2000. It is, at the time of writing, approaching a three standard deviation move from its mean quarterly average since 1985.'

What could sink the Nasdaq and bring the double top into play?

One area to watch is the closure of consulates. This represents a step up in the China/US tensions. After the Houston consulate was shut on Wednesday of this week President Trump said that shutting more embassies cannot be ruled out. A further escalation and we are back to the US/China trade war playbook from 2019.

However, there are a number of issues that are dragging on risk markets including rising virus cases from California to Hong Kong and slow progress towards a US stimulus package so there is plenty of reasons for sellers to enter the market.

Sellers are ready

With a very large number of market participants who are very jittery with the rise in stock prices the mood is there for selling. If we do see that bearish sentiment takes hold from geopolitical concerns or slowing economies this double top offers a way of playing the sell-side in tech.

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