Hi Reid,
There's another thing that makes me believe we have a bit to go before this correction is over, and that is market internals.
If you look at the weekly chart of the $VIX, you will see that the recent medium term corrections over the last year or so have been accompanied by a rise in volatilty of about 25% to 30%:
$VIX (volatility index):
stockcharts.com[w,a]waclyyay[de][pb10!b20][vc60][iLp14,3,3!Lp14,3,5]&pref=G
$VXN (Nasdaq volatility index):
stockcharts.com[w,a]waclyyay[de][pb10!b20][vc60][iLp14,3,3!Lp14,3,5]&pref=G
That has not happened yet this time around yet. Instead, we now see some of the lowest volatility readings in years, but there are indications of reversal now (note the consolidation at the lows and the most recent candles, for instance). I think we will see volatilities rise very soon, and that will put substantial downward pressure on prices.
That would imply that the reversal zone would occur at one of the lower support levels below $36.93.
The lower rail of the regression line (currently at $36) is more probable IMHO.
The region from 36.32 (200 sma) to 36.58 (lower BB rail) also is an area of support. But note that that BBs have gotten very contracted now. In fact, the current BB width is one of the lowest readings over the last year. This implies that the contraction will be resolved by QQQQ pushing against the lower rail sooner rather than later.
stockcharts.com[w,a]daclyyay[dc][pd20,2!b200][vc60][iLb14!Lyb20,2.0]&pref=G
This, together with the volatilities, now suggests to me that it is very likely that the 200 sma will be tested. Depending on how fast that happens and how the volume patterns develop along the way, I think there is a very good likelihood that the lower regression channel line will be tested.
Weekly QQQQ chart with regression channel:
139.142.147.218
Note also the most recent candle, which is bearish at the upper rail of the regression channel.
But: the slope of the regression channel is falling at a rate of about $0.27/week, or over $1 per month. So if QQQQ doesn't reverse, then in a month that lower rail will be just below $35, not $36.
If volume and volume patterns don't improve significantly, and if the volatilities have stayed down as QQQQ moves down to test support levels, then it will be extremely likely that next lower solid support will be tested, which would be long-term chart support around $35. There, I think the bulls will draw a line in the sand and stop the decline.
So: I see the 200 sma being tested, and if that test fails, QQQQ will proceed down to the lower rail of the regression channel. If that test fails, $35 will be tested, and will hold. There is a reasonable chance by that time the lower regression channel rail will more or less coincide with chart support at $35, making that level even stronger support. Again, I see no reason to believe QQQQ will fail at chart support at $35.
..... all IMHO, of course.
T |
