Hi Reid,
Very nice analysis, as always!
You present some good supporting arguments. But try as I might, I just can't convince myself that QQQQ has as much steam left in this relief rally as you outline in your analysis.
The reasons:
Market internals. Volatilities are hovering near their long-term lows again. Although the stochastics suggest more downside in the immediate future (1-2 days), the chart suggests this move will be limited:
stockcharts.com[w,a]daclyyay[dc][pd20,2!b20][vc60][iLp14,3,3]&pref=G
stockcharts.com[w,a]daclyyay[dc][pd20,2!b20][vc60][iLp14,3,3]&pref=G
The TICKs have reached highs and will reverse back down soon, perhaps as early as tomorrow. If the TICKs drop significantly, prices will soon follow:
stockcharts.com[w,a]dallyyay[db][pb10][vc60]&pref=G
stockcharts.com[w,a]dallyyay[db][pc10][vc60]&pref=G
The TRINs are moving up from bottoms, and since the TRINs move inversely to price, as the TRINs rise, prices will be pressured down. That said, there are conflicting signals here, because in the case of the Nasdaq TRIN, the rise has already been considerable, and the $TRINQ could reverse back down soon:
stockcharts.com[w,a]dallyyay[db][p][vc60][iLp14,3,3!Lp14,3,5]&pref=G
stockcharts.com[w,a]dallyyay[db][p][vc60][iLp14,3,3!Lp14,3,5]&pref=G
Futures: Collectively, the futures favor downside very soon in the stock indexes, particularly QQQQ.
As I write this, light crude futures continue to charge ahead. Oil futures are trading significantly above $52, and are now within about $1.00 of their all time highs reached in late October:
futuresource.com
Gold futures also continue to rally strongly, and are now testing chart resistance at close to the highest levels of the year so far:
futuresource.com
The dollar continues to break down below the recent gap down, and appears ready to test support at $82:
futuresource.com
Meanwhile, the stock index futures have traded flat or slightly up for most of the session.
Volume: Magnitude and patterns are not consistent with further upside here this week.
Chart and Technicals: I think the overhead resistance we have spoken about in numerous posts that begins at $38.01 will prove too much for QQQQ this time around, and will force reversal before there is signficant encroachment into this zone. We could well see an intraday spike into the $38.14 level, but I just can't see that QQQQ has sufficient momentum to carry it any further.
The upsloping trendline you identified was broken to the downside. Now, QQQQ is testing that line which is now resistance, and appears to have closed on Friday just above that point. But this looks tenuous to me. Further, the BBs have gotten acutely contracted, and this is unstable:
stockcharts.com[w,a]daclyyay[dc][pd20,2!b200][vc60][iLg!Lyb20,2.0]&pref=G
I can clearly see the evidence you present, and it is certainly valid. Still, I think the preponderance of evidence points to QQQQ getting turned away as it approaches overhead resistance, and that will likely end this short-term relief rally within the medium-term correction. The medium-term correction will then predominate, and carry QQQQ lower to the tests of support we have mentioned previously, expanding the BBs in the process by pushing against the lower rail.
I can't say how long this will take, but eventually I see reversal at $35, where the medium term correction will end, and the long-term uptrend will resume. My guess is that this will take at least a week or two, but probably no more than a month or two.
Economic reports and earnings are light most of the week. An hour before the open today (Monday) are the Personal Income and Personal Spending reports, followed by the Chicago PMI at 10 am ET. Friday there are employment reports.
Anyway, it will be interesting to watch as always, and hopefully we'll learn something no matter what happens.
T |
