QQQ at an important turning point. What happens?
The turning point I am eluding to is the 200DMA. QQQ fell through it like a rock, but has since ricocheted back up to it. So now what happens? Mr. Market hasn't made up his mind yet, as you can see from the hesitation. In technical analysis it's a well known fact that support routinely becomes resistance, and vice versa. Is that what we have here?
Notice the RSI went into oversold, and it very much looks like that what spawned our big 6% rally last friday and monday of this week....along with great earnings releases from some of the megacaps such as Apple and Microsoft. The thing is.... can a rally be sustained by some arbitrary indicator that says it's "oversold"? It takes buyers, lots of them. Are solid earnings from the megacaps enough to end the slide? Short term, perhaps.
I, personally, don't think the rally will continue. I have two theories:
It hits off of the 200DMA and goes back down.
It closes above the 200DMA and makes it up to the height of the left shoulder in the shown Head and Shoulders pattern around $380. Then it goes back down.
Both are bearish. I think that the markets have shown every willingness to panic whenever they hear the word "inflation" and the associated fear that comes with it. Jerome Powell has openly said he's going to raise rates, and I think investors worldwide have interpreted that as a damn good time to lock in any and all profits from the last bull run. Selling begets selling, and it seems the bears have the edge.... especially with the Fed chairman on their side.
Sell the rally, wait for QQQ to retreat to $290-$300. That area will be a solid support where the 200 period WEEKLY average is going to coming into play, along with being the 50% retracement point of the uptrend going from the original Covid Crash up to the recent all time high. That 200SMA on the weekly bars is a very good historical spot to begin the next bull cycle.
Notice the RSI went into oversold, and it very much looks like that what spawned our big 6% rally last friday and monday of this week....along with great earnings releases from some of the megacaps such as Apple and Microsoft. The thing is.... can a rally be sustained by some arbitrary indicator that says it's "oversold"? It takes buyers, lots of them. Are solid earnings from the megacaps enough to end the slide? Short term, perhaps.
I, personally, don't think the rally will continue. I have two theories:
It hits off of the 200DMA and goes back down.
It closes above the 200DMA and makes it up to the height of the left shoulder in the shown Head and Shoulders pattern around $380. Then it goes back down.
Both are bearish. I think that the markets have shown every willingness to panic whenever they hear the word "inflation" and the associated fear that comes with it. Jerome Powell has openly said he's going to raise rates, and I think investors worldwide have interpreted that as a damn good time to lock in any and all profits from the last bull run. Selling begets selling, and it seems the bears have the edge.... especially with the Fed chairman on their side.
Sell the rally, wait for QQQ to retreat to $290-$300. That area will be a solid support where the 200 period WEEKLY average is going to coming into play, along with being the 50% retracement point of the uptrend going from the original Covid Crash up to the recent all time high. That 200SMA on the weekly bars is a very good historical spot to begin the next bull cycle.
Comment:
Here is the weekly log chart of QQQ. You can see where we are in relation to the 200SMA. It stands to reason we'll need to get much closer to that line before a sustained rally can begin anew.
Trade closed: target reached:
So far I nailed this one exactly... I mean exactly. I think we ultimately go down to $260-$290 and there isn't enough reward at this point to maintain the short, especially considering I really do think we get a short term bounce as of 5/11. If it gets high enough the risk/reward will come back into line and I will again short it or go via SQQQ.