Hi JK,
The reason is that QQQQ is in a long-term uptrend that began at the end of September 2002, 137 weeks ago:
139.142.147.218
That regression channel is rising at the rate of $5 every 11 months, which works out to $0.45/month.
Now we are at the middle of May, and 7 months from now we will be at the middle of December. If you multiply 7 months by $0.45, you get $3.15. Add that to QQQQ's current price, and that gives you $39.30, which is an increase of 8.7%.
But I think QQQQ will rise FASTER than the slope of the regression channel for several reasons. First, that is the history: QQQQ generally rises and falls faster than the overall regression channel slope, and that's how it can trade from one rail of the regression channel to the other. Actually, this is circular logic, because the mathematical definition of the regression channel mandates this in the first place, and in any trending regression channel (i.e., not flat) this will be true. The extent to which it is true is directly related to the slope of the regression channel.
But I think QQQQ will rally here, and the $SOX will participate in that rally. Here's why I think that:
139.142.147.218
This chart shows that the $SOX is in a trading channel now. It has successfully tested support, formed technical buy signals, and will now rally to the upper rail of that medium-term regression channel. That will take roughly 5 - 7 weeks, judging by how long that process took in the past.
Whenever the $SOX participates, QQQQ rallies much more strongly than when it does not. You can see this by switching back and forth between the two charts, and analyzing how QQQQ traded when the $SOX was rallying compared to how it traded when the $SOX was not rallying:
$SOX:
139.142.147.218
QQQQ:
139.142.147.218
So, when the $SOX rallied strongly from Feb. 2003 until January 2004, QQQQ rallied from about $23 to about $38 (65%) during those 11 months. This works out to a slope of $1.36 per month, or 6.0% per month.
From the V-bottom of August until the highs of December (4 months), QQQQ and the $SOX both rallied, and QQQQ moved from $32.07 to $40.33. That works out to 26% in 4 months, or 6.5% per month.
stockcharts.com[w,a]waclyyay[dd][pb50!b200!f][vc60][iUb14!La12,26,9]&pref=G
So assuming $SOX participation, over the next 5 - 7 weeks at least, QQQQ will rally about 6.0 - 6.5% per month, which take it to $40.62 to $41 (an increase of 12.4% to 13.4%), with 5 months left to go in the year.
To get to +20%, QQQQ will have to rise from there an additional 6.6% to 7.6%. That is a slam dunk by September or so if the $SOX continues to participate.
But what about after that?
Well, I think the rally will continue because the $SOX will successfully test that upper resistance from the medium term regression channel rail. The reason I think that is partly because of the long-term chart, which clearly shows the $SOX to be in a long-term uptrend that began in October 2003. After this correction and sideways consolidation phases that began in Jan 2004, the $SOX will now revert to the underlying trend: UP:
139.142.147.218
So, to get to a 20% gain by the year's end seems entirely within the reach of QQQQ, and will require only a modest rally from August thru the end of the year because by August QQQQ will already be up 12% or 13% from here, and the $SOX will continue to rally. If so, QQQQ should get to +20% easily by Thanksgiving.
If the $SOX does not rally past the upper regression channel rail resistance, then I think there is still a reasonably good chance it will meander upwards the final 7% to 8% it will take to get to +20%, and it will have 4 months to do so. 2% a month seems entirely within reach to me.
The bottom line is that the $SOX will power a strong move in QQQQ over at least part of the summer, but bears close watching because the fate of QQQQ after that is largely in the hands of the $SOX, and whether the $SOX can successfully break overhead will be critical---but I think it is very likely.
T |
