Looking at the weekly chart, QQQ (which primarily consists of technology growth companies plus a ton of AMZN) has once again faked out the bears and melted higher....however, this time, I expect we will see a significant retracement. Not only has trade volume been dropping during this last push higher, but we can see that we have produced a "blow-off top" above the bearish rising wedge. We saw this just prior to the previous pull back this summer, but a bounce off long-term moving averages saved the index and trapped a bunch of shorts (the last spike in volume occurred at the July/August dip). Those short-sided traders have likely exited for a loss by now. Assuming tomorrow is a balance day like most Fridays, look for a gap down on the weekly chart on Monday to confirm that this trade is working. Such a gap could produce an island reversal pattern or even an evening star reversal.
I'm keeping the stop on this counter-trend trade tight, as a consolidation pattern such as a bull flag followed by another move higher is what everyone should expect here if hopes of a China trade deal continue to materialize. Still, I see better odds to the short side as a swing trader. Even a 50% retracement of the recent wave from mid September would offer excellent risk: reward. If we make a lower high after that, I'd look to re-enter with a larger position and target the daily 200ma.
As far as a long-sided trade, I'd personally wait it out. Yes, there could be more upside, but with the market this over-extended beyond the established trendlines, all it would take is an angry tweet to send bulls running for cover again. Buying the dip in this market is one thing, but buying breakouts at this point seems insanely risky (but I admit, it would have paid off yesterday).
I'm keeping the stop on this counter-trend trade tight, as a consolidation pattern such as a bull flag followed by another move higher is what everyone should expect here if hopes of a China trade deal continue to materialize. Still, I see better odds to the short side as a swing trader. Even a 50% retracement of the recent wave from mid September would offer excellent risk: reward. If we make a lower high after that, I'd look to re-enter with a larger position and target the daily 200ma.
As far as a long-sided trade, I'd personally wait it out. Yes, there could be more upside, but with the market this over-extended beyond the established trendlines, all it would take is an angry tweet to send bulls running for cover again. Buying the dip in this market is one thing, but buying breakouts at this point seems insanely risky (but I admit, it would have paid off yesterday).