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In this week’s Stock Market Update, Mike Webster pointed out that the Nasdaq is now in a Power Trend. In this post we’ll look at what characteristics make up a Power Trend and we’ll also dive into three examples, two from dates in the past as well as the specifics of the current Power Trend.

Here are the primary considerations for a market to be considered in a Power Trend.

1. Low above the 21-day for 10 consecutive days.
2. 21-day above the 50-day for five days, without a break below the 50-day.
3. 50-day in an uptrend.
4. If the criteria above are met, for a power trend to begin, it must be an up day.

Once the 21-day crosses below the 50-day that is a sign the trend may be coming to an end. Mike also mentioned there are “circuit-breaker rules” that can end a PT before the 21-day to 50-day crossover.

It should be noted, I am using the Nasdaq for all the charts that follow.

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Following is a visual summary I created based on Mike Webster’s discussion on Investors.com IBDLive, highlighting the similarities of the 1998 Nasdaq market correction and today’s market.

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Overhead supply refers to buyers who entered a trade near a high and are now waiting to sell as the stock has had a significant drop in price. These buyers are waiting for the price to rise close to the price they paid so they can get out of the trade with a minimal loss.

The challenge with overhead supply is that these buyers can create resistance to upward price movement.

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