Just when it seemed like the artificial intelligence bubble would never burst, a significant deflation in tech stocks and the Nasdaq took hold. Although a correction of up to 20% was long overdue in my opinion, the speed and intensity of this correction have been mind-boggling. Corrections are beneficial for the markets as they provide a necessary valuation reset and allow traders to go bullish at much better prices. Below is a six-month chart of Invesco QQQ Trust , an ETF that tracks the Nasdaq-100. I have analyzed the current price movement and identified areas where the market is likely to turn around. For my analysis, I am using exponential moving averages (EMAs): 10-day (blue), 21-day (yellow), and 34-day (pink) EMAs. Significant areas in the last year where the Nasdaq-100 has experienced major trend changes and pullbacks are highlighted. November 2023 : The 10-day EMA crossed above the 21 and 34 EMAs, marking the beginning of the current bull run and a significant trend change. April 2023 : After a six-month rally, another EMA crossover in April coincided with a 7.6% pullback in the Nasdaq 100 (or QQQ in this case). May 2023 : The April pullback lasted about a month. We saw another EMA crossover in May, signaling the end of the pullback and the start of a new bull run. July 2023 : Although the majority of the current correction unfolded in August, the EMA crossover signal had already appeared in July. When will this correction end? So, when will this correction end, and how can one know when it’s time to go bullish again? EMA crossovers are considered very reliable signals for long-term trend changes. I will be waiting for this to happen before going bullish on the markets again. It’s important to note that nobody can catch the tops and bottoms of a move perfectly. Waiting for confirmation means missing out on a small part of the move when markets turn around. For example, in May 2023, waiting for the EMA crossover would have meant missing out on 4.6% of the move. However, in my book, this is better than jumping in too early, only to find that the markets continue to slide. The trade setup: QQQ bull call spread To take a bullish trade on QQQ, I will be using a trade structure called a “bull call spread.” To construct my bull call spread, I will need to buy an at-the-money call option and sell an out-of-the-money call option as a single unit. It’s important to note that if one waits for confirmation from the EMA crossovers, the price of QQQ will…
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