Friday, August 6, 2010

The QQQQ continuum where equities' outlook retains a bearish cast while testing resistance (or potential breakout) levels

Let's focus on the QQQQ, the widely-traded ETF for the Nasdaq 100 index ($NDX) which is a great way to size up the stock market in addition to the S&P 500 and the Dow Jones Industrial Average. Normally when the NDX (QQQQ) is doing well, the rest of the stock market either is also doing well, or soon will. On the daily chart at right, I've marked that it's potentially getting tired from an overbought position, along with a potential (bearish) wedge pattern up from the late June lows. A while ago, I'd marked a potential triangle shape - the top of that triangle would be the shallow blue line ... you can see that price has moved above its descending-tops angle but hasn't (at least yet) popped above the price level of those prior highs. So I've simply marked lines that traders can use to gauge whether the QQQQ price is moving high enough to break resistance, or alternatively droops and perhaps violates support.

Next, let's look at the point and figure (P&F) chart of the QQQQ's.
This P&F chart is simply using the default settings provided by (which is the source of all these charts, although the linear and circle markings I've made on the QQQQ daily chart are my own) - and it's still bearish. It is still showing a bearish price objective of $36 which would be a distinct drop from the current price level, closed at $46.76 today. The QQQQ would have to rise above $47 and into the $48 level to show a bullish breakout. That may happen - but it hasn't yet.

Finally there's the weekly chart which I've added below. There was negative divergence going into the April-May highs, which hasn't (yet) been defeated. But the StochRSI which is a fast-moving indicator has gone positive, so that's potentially in its favor. Then again, the raw volumes show that there's been more selling than buying. Obviously that would have to reverse, in order to support a more bullish outlook. MACD hit the zero midline, along with its indicator showing it's at a decision level testing support.... just as the QQQQ price actually had been testing down to its 200-week moving average. Right now, the price is testing at its weekly Bollinger Band midline.

All in all, from the swing trade perspective I still have to say the QQQQ continues in a defensive posture unless and until it moves decisively above $48.00. A breakout above the $47 and especially $48 level would register as positive in the indicators as described above. Seasonally, we know we're heading toward the August opex which is August 20. That's close to the late August time frame which some prognosticators are saying may be a swing high in the markets. It's difficult to size up whether the QQQQ will be able to do much more than test the $47 and $48 levels during these next two weeks. After that - if it cannot get past resistance on a test of those levels - it may be a matter of probing for support around that $36 level foreshadowed in the P&F chart.

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