False break – warning sign – that preceded Nasdaq 100 collapse

Alternative title: Three years later – different market, same trick

On 29 June 2015, I posted this ‘False break – warning sign – that preceded China A50 collapse‘. Take note of the false break at the top near label A.

If you recognised this pattern, you could avoid China’s worst stock market crash or even make money going short.

Whether you call it ‘failed rally’, failed break, false breakout, bull trap or wash and rinse or any other name, it is a highly recognisable price action. And it showed up at the high of China A50 before the worst crash in the Chinese stock market that prompted the People’s Bank of China to cut rates.

FTSE China A50 daily chart

FTSE China A50 daily chart

False breaks like this is a recurring theme in  this blog where we see it as 1) a phenomenon that happens again and again, 2) that it becomes a strategy for traders to fade a rally and 3) that it might not be a ‘natural’ phenomenon but a ‘man-made‘ one.

This is one price action that every trader has to remember by heart and the nemesis of everyone who buys high hoping to sell higher.

Now look at this chart of Nasdaq 100. Same old trick. Even the price pattern from January to recent false break resembles closely the China A50 chart above.

Nasdaq 100 prints false break before collapse

Nasdaq 100 prints false break before collapse | Source: Investing.com

History repeats – not exactly but close enough. Posted this observation↓ on 19 March.

See also yesterday’s post on HSI where false breaks were also identified. HSI has since fallen by more than 1400 points.

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