So far the Q’s have reversed after hitting T3 and have backfilled Tuesday’s gap, the bottom of which (86.84) is support. If that level is clearly taken out (at least two 5 minute candlestick closes below), the chances for a continued move down to at least the 86 level would be good IMO. Below is the updated 60 minute chart along with a 15 minute chart showing my best “guesstimate” of what the near-term path of the QQQ might look like from a micro-perspective.
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The Q’s have now hit my 3rd bounce target (T3) where I have removed the last of my QQQ long hedge position taken around my T4 final near-term target level. As the T3 bounce target has now been reached, my preferred scenario (yellow) would have a resumption of the current intermediate-term downtrend from around this level (both the short-term & long-term trends in the QQQ are bullish). My alternative scenario (purple) at this point would be a continued move higher to the yellow downtrend line which, if hit soon (ideally Monday afternoon), would come in around the 61.8% Fibonacci retracement level of the prior move down from the early March highs. The near-term technical picture on the $SPX/SPY is a little obscure at this time and as such, I continue to keep things light for now, i.e.- establishing or adding to positions only on the most compelling trade setups & even then, using below average position sizing.
One of the most simple yet effective methods for determining the intermediate-term trend in the US markets would be the posture of the 20 & 50-day exponential moving average (ema) pair. When the 20-day ema is trading above the 50-day ema, the trend is bullish & bearish when below. When a faster moving average crosses below a slower moving average, such as the 20/50 pair, 50/100 pair, etc.., that is referred to as a “Death Cross” while the term for a faster moving average crossing above the slower average is referred to as a “Golden Cross”. Different traders and investors use different moving average pairs, depending on their own unique preference & trading time frame. Some also prefer simple moving averages (SMA) over EMAs.
My preference is to use what ever pair (13/39, 20/50, 50/200, etc..) and whatever type (EMA, SMA, etc..) best fits each chart and time frame that I’m trading on. In other words, if the 20/50 daily ema pair, as shown on the charts below, has done a poor job of defining the trends over the last several years then I will try different moving average pairs until I find one that has. With that being said, here are the daily charts of the SPY (S&P 500 Tracking ETF) and the QQQ (Nasdaq 100 Tracking ETF) highlighting the periods where the 20 ema was trading below the 50 ema, excluding a few very minor whipsaw signals. The QQQ went to an intermediate-term sell signal on Tuesday April 8th with the 20-ema closing below the 50-ema and the 20-ema remains solidly below the 50-ema today. The SPY on the other hand, has yet to signal a death-cross with 20/50-day ema pair although the 20-ema remains precariously close to the 50-ema at this time. Therefore, the intermediate-term trend for the US markets, as least as defined by this metric, remains unclear at this time. As such, I continue to keep things somewhat light for now although I have removed most of my short hedges as the Q’s have essentially my preferred bounce target (as per the most recent 60 minute scenarios).
Here’s some interesting time symmetry that I noticed while looking at the very long-term charts of the US markets. This is a 20-year chart of the $OEX (S&P 100 Index)*. I decided to use the $OEX vs. the $SPX on this chart mainly because at the end of the 2000-2002 bear market, the $SPX managed to eek out a marginal new low in Mid Oct 2002 following the Mid-July reaction low while the $OEX bottomed on that July low, ending the bear market and kicking off the 2002-2007 bull market. I drew a horizontal line from the beginning of the steep bull run that kicked off in Dec ’94, which defined the most powerful leg of the ’90-’07 secular bull market. That final 5.25 year run was essentially it’s own cyclical bull market that kicked off following a yearlong deer market. The line terminates at the end of that bull market in March 2000. I then copied two exact replicas of that line (which would be identical in time, of course) and placed those at the beginning of the ’02-’07 bull market and the ’09-current bull market.
Interesting to see that not only are these three bull markets defined by clear uptrend lines but the previous two were essentially identical in duration. If history were to repeat itself, this bull market would have about 5 more weeks before printing the final top. I will say that is not
Not much new to report as the market continues to bounce after hitting the initial downside targets on the daily charts. With prices quickly approaching my second & preferred bounce target, I plan to book partial or possibly full profits on the long side hedges and possibly start strategically adding back short exposure. Although T2 (86.80) is my preferred bounce target, I am nearly as open to a continued move up to my 3rd and final bounce target (T3 at 87.60), although I would expect a decent reaction off the T2 level before we get there (assuming that we do). If & when prices manage to take out the T3 level by a decent margin, I will share my thoughts at that time.
For those with a long-term bullish view who added long exposure around the T4 level, consider raising or trailing stops in order to let your winners ride while protecting profits, as new highs in the market is certainly a possibility. For those who share my longer-term bearish outlook, there are plenty of Active Short Trades that will be offering objective short entries or add-ons to an existing position as they bounce back to resistance. Finally, for those not sure which way to be positioned during all this recent volatility, staying on the sidelines (in cash) is probably the best trade that you can make at this time.
Just to clarify or expand on the previous 60 minute QQQ chart & comments, we did get a 60 minute close below the recent lows in the Q’s but by the slightest margin. Much more importantly, the three broad US indices that I focus my analysis on; the $SPX, $NDX, & $RUT are all still sitting essentially on or above key support (my long-standing first downside targets on the daily charts). Of course support is support until broken and although I still favor prices ultimately breaking below these support levels, at this time I continue to favor a bounce off the initial tag of these levels. As I’ve also repeatedly stated over the last several trading sessions, my degree of confidence on the near-term directions of the markets (and hence, any possible bounce) is not very strong and so my preference remains to keep things light by hedging up close to a market neutral portfolio (taking some long exposure to offset a large number of swing short trades that have yet to hit my preferred targets).
The daily charts of the $NDX, $SPX & $RUT below show the $NDX basically still trading at my first target level with both the $SPX & $RUT still slightly above their respective first downside targets, which are likely to be tagged before any meaningful bounce. If that happens, the $NDX would likely go slightly lower & thereby overshooting this support level by a relatively small margin. Only a solid break below these target/support levels on all three indices would convince me to remove my long hedges as that would likely open the door to a move down to the next target levels. As always, the live links to these charts are accessible from both the sidebar on the Homepage as well as the Live Chart Links page.
The Q’s continue to bounce along support with bullish divergences in place. Until/unless we get a solid break and 60 minute close below the recent lows, this is still an objective area to book some short-side profits and/or take some long exposure (pure-play or hedging).
My 4th & final intermediate-term target was hit on Friday. That, coupled with the bullish divergences in place on the 60 minute time frame, means that the 1% gap up today was likely the beginning of a larger counter-trend rally. Blue horizontal lines mark my bounce targets with T2 (86.80) my preferred target at this time & T3 (87.60) my current final target. Only a move 1% or more below Friday’s lows will negate this scenario. Keep in mind that I took us a while to get down here and so it might take several days, possibly weeks, to retrace a third or half of the move down from the March 7th peak in the $NDX/QQQ (my 2nd & 3rd targets come in around the 38.2% & 50% Fibonacci retracement levels of the entire move off the highs). As such, the market updates might be light for a while unless anything significant develops.
Just to clarify, a preferred target on RSOTC is the profit target on a trade which hits the “sweet-spot” on the R/R curve whereas the final target is the level at which the R/R on the trade no longer remains clearly skewed in the direction of that move. Typically, but not always, the final target is the level at which I believe a trend reversal is likely as well. I will often book full or partial profits at my preferred target while I will always book full profits at my final target, assuming that I still hold some or all of the position.
As of now, I have two levels on the QQQ (Nasdaq 100) that I am targeting. My preferred bounce target is 86.80 with a minor resistance level at the 85.30-85.35ish level that may or may not come into play. These targets are based upon several factors including horizontal resistance levels & Fibonacci clusters but I have to say that my degree of confidence in the near-term direction of the market is not high enough to warrant positioning aggressive long or short & therefore, I plan to keep most or all of the QQQ long hedges taken before the close on Friday until the 86.80 level is reached -OR- both the $SPX & $NDX make an impulsive break below Friday’s lows. That plan can change at any time but for now, I’d like to keep things light and just watch the market action as the dust settles from the recent sharp sell-off. I’ll post some updated index charts after the markets opens today.
We now have that lower low that I was leaning towards in the $NDX/QQQ, just like we had when the market bottomed at this support level back in early February immediately before prices exploded up to new all-time highs (see arrows). Although I don’t expect a bounce of that magnitude, nor am I even sure that we will get one, I took precautionary measures to partially hedge my remaining short positions here buy going long the QQQ (via various leveraged derivatives). My plan is to see how the markets follow through early next week before either moving back towards an aggressive short position or increasing my hedges and further reducing my short exposure. Updated 60 minute chart below.