September 5th, 2024

Nasdaq remains weak, while the S&P continues to defend support. This divergence is a tug of war that still needs time to play out before we have clarity on direction for the indexes.

I compare the indexes using apples to apples in my strategy. This means I use the same exact strategy on a daily chart and look to see how the indexes are trading comparatively for leadership to the upside or downside. That’s how I conclude the divergence and recognize that NQ is weaker than ES. This matters because when I trade intraday, I want to be long the stronger index or short the weaker index. It also helps me understand why we may have a choppy tape when there’s divergence. The cleanest moves in the markets occur when the indexes look similar on the charts and move in the same direction.

How do we as traders approach this current market environment?

As I mentioned yesterday, I prefer looking for short signals in NQ and long signals in ES. Managing risk in NQ to the short side right now is far too wide for me, so I am more focused on looking for longs in ES as long as they hold support.

Technically, ES is sitting right on a key range of support; 5524-5502. As long as the buyers can defend this area, I will continue to look to go long, leaning on this area. If we can see a push above 5531, then I think we look to test 5554; above 5554, we could test 5571. If we fail to hold 5500 this morning, selling may escalate, and we could head towards 5476. Below 5476 opens the door to 5451.

NQ remains bearish on my charts until I see NQ regain 19,431, and it looks like we’re headed to 18,435.

I will be live on Develop Your Edge this morning at 10:30 ET on my YouTube channel discussing the indexes and doing a segment focusing on trading the RTY. Here is the link if you want to check it out: https://www.youtube.com/live/Wg7JmSm7OEk?si=PeJY_TALsf0Z5pGU See you in the livestream.

Keep it light and tight.

Cheers, DELI