Bulls came under pressure on Wednesday as a key sentiment driver cut in the other direction. The Nasdaq 100 lost 1.9%, to 12,495. The decline erases most of Tuesday’s advance, yet key support levels remain in place, states Jon Markman, editor of Strategic Advantage.

Bulls have been riding since the middle of January on a wave of stronger sentiment. Enthusiasm about artificial intelligence as a business led to upgrades in semiconductor issues like Nvidia (NVDA), and most recently, Microsoft (MSFT). The other side of that story is disruption, and on Wednesday investors began selling digital advertising stocks. Alphabet (GOOGL), Meta Platforms (META), and Amazon.com (AMZN) shares all came under pressure.

Objectively, this is premature. Microsoft doesn’t have a reliable AI product, yet this is how markets work. Investors are often irrational, in both directions. Though to be fair, near-term irrationality can lead to long-term prescience.

The benchmark NDX has critical support at 12,063, the rising 20-day moving average. A successful pullback to that level would set up a bullish continuation pattern.

The QQQ Loop: Current position is cash or a cash alternative like WisdomTree Floating Rate Treasury ETF (USFR). Now set up to make the following trade:

  • Place an order to buy ProShares Ultra QQQ (QLD) at the new $43.75 lmt gtc.
  • If filled, set up to sell half of the position at $49.30 lmt gtc, and a half at $58.20 lmt gtc.
  • If filled, place a stop loss order at $41.10 stp.

If this trade works, the potential upside targets are +12.7% and +33%. The potential downside risk is -6.1%.

Learn more about Jon Markman here...