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NASDAQ-100 reverses to "bull correction"

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Friday's action has the NASDAQ-100 bullish percent chart ($BPNDX) reversing back into a column of O's and "bull correction" status. This may have traders taking some early defensive action or writing near-term covered calls on some underlying positions if warranted.

Nasdaq-100 Bullish % Chart - 2% box

Bull correction is defined as a bull market that is now taking a rest. On the above chart, the NASDAQ-100 entered a "bull alert" status when the bullish percent reversed from 0% to 6% (3 box reversal higher), then entered a "bull confirmed" phase when the bullish percent exceeded a previous column of X's high at 52%. Friday's action and reversal to 56% now has this market (NASDAQ- 100) in "bull correction." If you feel like you're on a roller coaster ride, you're not alone. This is the most active bullish percent chart we follow and is usually the first to turn higher or lower as the index itself contains more volatile stocks.

NASDAQ-100 Trust (QQQ) Chart - $1 box

With the bullish % chart back in a column of O's, the trader in the QQQ may look at the point/figure chart for this index and try to get a feel for how to trade going forward. With bullish % in a column of O's, traders should be rather "neutral" with their trading. Traders long the underlying QQQ might want to be writing some covered calls below the $37 level. The technique of channeling helps us define a potential trading channel. Traders can compare the bullish percent chart against the point/figure chart of the QQQ and actually "line up" the 4, 5, 6, 7, 8, 9 and A (A= first entry in October) and get a feel for how the bullish percent chart can help you understand levels of risk as it pertains to bullish percent.

Jeff Bailey
Senior Market Technician
Option Investor

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