Hi Gush,
I was surprised by today's trading. I expected QQQQ to sell off in the afternoon session, and into the close. In retrospect, there are clear indications it should have done so, and I think that event has simply been delayed into next week, just as we saw last Friday, which was followed by selling on Monday thru Wednesday of this week. And today, QQQQ formed a candle much like what we saw last Friday.
QQQQ daily chart:
139.142.147.218
But let's look at the bigger picture first. Here's the weekly chart, which shows the medium and short-term trends.
QQQQ weekly chart:
stockcharts.com[w,a]waclyyay[dd][pi!d20,2][vc60][iLg!Lp14,3,3]&pref=G
You can see on this chart that QQQQ is basically in a relief rally within a medium-term correction. This week's candle (a narrow range candle, almost a Doji) suggests reversal, and so an end to the relief rally. Further support for this interpretation comes from the fact that this candle formed at an area of resistance---the middle of the Bollinger bands, which is the same as the 20 week simple moving average. In addition, note the large gray volume histogram on the left, which represents resistive volume. This sits just above QQQQ, at $38.00. We have been talking about this for some time... this volume arises from the bearish "power candlesticks" that formed in January. This proved to be powerful resistance that stopped the advance of QQQQ on Monday and Tuesday of this week. There were other factors that contributed to this resistance as well, as we have described in other posts. All these factors remain unchanged, and so will continue to exert very strong resistive pressure on QQQQ.
Now let's look at the shorter-term trend. Here is how it looks on the daily (3 month) chart. Note that there is very little resistive volume immediately above (gray volume histogram on the left). But just above that, there is tremendous resistive volume (red volume histogram, which is much bigger than the gray part).
QQQQ daily 3 month chart:
stockcharts.com[w,a]daclyyay[db][pi!d20,2][vc60][iLg!Lp14,3,3]&pref=G
Today, despite the bullish candle, the volume picture today was bearish, and most consistent with a reaction to the downside next week. The market has simply not accumulated enough support (i.e., buying pressure surges at lows) to overcome the resistance overhead and fuel continuation of the long-term uptrend yet. I think the only way this can happen is by the market trading down, and pulling in heavy buyers. Most likely, this will occur at the levels outlined before (lower BB/200 sma, currently at $36.25 - $36.38; failing there, $35.00). Note that the Bollinger band width has begun to tighten.... if this continues, that will make $35 the more likely of the two targets above. But this also depends on how volume patterns develop: if we see a powerful surge of volume at the first price target ($36.25 - $36.38), then reversal there becomes very likely. If not, the most likely course is for QQQQ to proceed down to $35.00. I cannot see QQQQ trading below $35.00 on a closing basis.
stockcharts.com[w,a]daclyyay[dc][pb200!d20,2][vc60][iLyb20,2.0]&pref=G
Market internals present a mixed picture. Partly, this is a result of the divergence between the Nasdaq and the other indexes ($SPX and $INDU). This divergence became even more pronounced this week, as the $SPX and $INDU continue to rally, and in fact the DJIA ($INDU) today closed at a high for 2005. In contrast, the $COMPX finished the week down, is significantly down on the year, and is currently trading well below the 2004 highs, and virtually unchanged from a year ago:
DJIA:
139.142.147.218
S&P500:
139.142.147.218
$COMPX:
139.142.147.218
$COMPX weekly 1 year chart:
139.142.147.218
So really, not much has changed from a week ago. And my conclusion is really the same as a week ago, which is posted here:
Message 21019796
The main difference is that I no longer see corroboration from market internals, which give mixed signals now, partly because the divergence in the indexes has gotten very pronounced. We just saw a modest short-term relief rally within the context of a medium-term correction. Both these trends are within the context of a long-term uptrend. There is powerful resistance overhead that has proven too much for QQQQ at this time, but there is even more powerful support below that will eventually stop the decline. QQQQ needs to "take on coal" in the form of strong surges in supportive volume (i.e., professional buying/accumulation). Until it does so, it will not be able to seriously challenge overhead resistance. But once it does, the medium-term correction will end, and QQQQ will revert to the long-term uptrend.
So next week, QQQQ will probably again challenge overhead resistance at $38.01 - $38.14. Most likely this will occur early in the week. This might be just an intraday spike, or we may see QQQQ close at or near that region. Either way, it will get turned back again just as it did this week, and the medium-term correction will resume. Price targets below are the support levels defined by the lower BB rail and the 200 sma, which is the region between $36.25 to 36.38. If strong supportive volume does not appear as this level is approached, then QQQQ will proceed down to solid chart support at $35.00. I cannot say how long this may take. It could take a week or it could take a month or more, but my guess is it will take about 2 weeks.
All IMHO, of course.....
T |
