Hi JK,
You make some interesting points.... I am really not entirely sure what to make of it.
But I notice that the SPX has also outperformed the NDX over the last month. This is unusual, as you can see from the following chart, which plots SPX/NDX:
stockcharts.com[w,a]daclyyay[dd][pd20,2!b20!f][vc60][iLk12!La8,17,9]&pref=G
At first, this might seem inconsistent with the fact that $COMPX has outperformed $NDX. But if you look at the $RUT/$NDX, you will see that this has markedly outperformed the $NDX:
stockcharts.com[w,a]daclyyay[dd][pd20,2!b20!f][vc60][iLk12!La8,17,9]&pref=G
I think the explanation might partly lie in the $SOX. This index is critical for NDX, and has been locked in a trading range for most of the last year between about $380 and $445:
stockcharts.com[w,a]daclyyay[dd][pd20,2!b20!f][vc60][iLk12!La8,17,9]&pref=G
At first glance, the above chart looks like a triple-top, but if you switch to the weekly 3 year chart, you can see that this is actually an ascending triangle, and now the $SOX has successfully tested support at the middle of the BBs:
stockcharts.com[w,a]waclyyay[de][pd20,2!b20!f][vc60]&pref=G
You can also see the the $SOX has not performed as well as the other indexes, and I think that might be part of the explanation why $NDX has been held back. Here is the chart of $SOX/$NDX, which is pretty flat:
stockcharts.com[w,a]daclyyay[dd][pd20,2!b20!f][vc60][iLk12!La8,17,9]&pref=G
I have posted a number of times that the $NDX can not rally strongly unless and until the $SOX participates. Now, the $SOX is showing signs of life, with clear technical buy signals from oversold conditions, and the $SOX has just lifted off support from the lower BB rail and minor chart support from March/April:
139.142.147.218
Given this development in the $SOX, that makes a short position in QQQQ too hazardous for me. If the $SOX decides to move, then QQQQ can move very strongly with it, and rather quickly you could find yourself seriously underwater if you are short.
The general scenario you outline I would agree with (1-3 days bullish, 3-10 days bearish, 10-30 days bullish), and if you are going to short something during that middle time frame, I'd say the RUT is the only reasonable choice, since it is getting very overbought. However, note that there are NO technical sell signals yet; I would NOT anticipate here, because basically you'll probably be short when the $NDX is rallying, and that makes the short more risky:
139.142.147.218
I also would suggest that if you short the RUT, that you consider hedging that position with a simultaneous long position in one of the other indexes that is out of sync with the RUT, especially the NDX or the SOX (assuming the chart and technicals are consistent with a long position at that time). If most of the rest of the indexes are rallying, this hedging strategy would tend to protect you from becoming the victim of rotation, as the other indexes take a breather and pass the baton to the small caps.
T |
