Saturday, August 8, 2009


Here is a 10 year, weekly chart of the NASDAQ ETF, the Q's (QQQQ).

Click for larger.... browser back.

As pointed out in this article:,
we are approaching resistance. Since the Q's are a leading indicator of the broad market, this could have some importance.

I am seeing Price approaching the trend line and Big Red, the 200 MA, so we'll have to trade cautiously. Notice this broad market chart:

Here is the weekly, 2 years, broad market (SPY) chart...

Click for larger.... yada yada.

Since the Q's are in trouble, I took the time to dissect the broad market a bit further than usual...

Downtrend line 1 indicates the power of the exercise. Notice the difficulty that Price had in bouncing off several times (below the 3). Further, notice the strong resistance that line 3 held in the area of the 5. That's some powerful juju! Line #2 is hanging above our heads to become important at some future date.

Uptrend line 4 describes the tops of the uptrend we currently enjoy. Notice that we are quickly approaching it.

Now, with the framework set, here's the bottom line....

Notice the uptrend line #5. It is not parallel to line #4. That's a bad thing because Price hates to be squeezed. We have to expect a breakout, up or down, from the squeeze. It may happen next week, it may come to us four months from now, it is definitely coming.

To my eye, the weekly Price action of the Q's and the SPY, are looking at a pullback_sell pattern.

Bonus points:

Notice the last 4 candles. The first being HUGE, the remainders becoming much more constrained. This indicates a dissipation of momentum. Notice that the same effect occurred on the Q's even more.

The oddball:

The one thing that contradicts all of the above is volume. This week, both the SPY and the Q's enjoyed an increase. It could be an indication of sidelined money entering the market. It could indicate bears waking up but being matched by the bulls. If the second scenario is true, a pullback is more likely.

OK, the real bottom line:
My guess is a struggle next week. The markets are not really convinced that they want to go up. In fact, fundamentals do not predict further increases. Confirmation, the NASDAQ only increased one point last week. We might see some pullback before the lines are broken. If the pull back gets momentum, we could see a test of SPY line 4. Hopefully not any lower.

Have fun but keep a close watch! This is not a good time for a "set it and forget it mentality. If I wasn't watching closely, I'd sell everything, take a week off, and wait for a better market to trade. Hmm... that sounds like fun, my family could use a vacation. Oh well.

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