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On Watch For An Island Cluster Reversal In QQQ

As discussed in the U.S. Stock Market Near-Term Outlook video published over the weekend, I remain on the lookout for a potential Island Cluster Reversal topping pattern in the Nasdaq 100 ($NDX & QQQ). From my experience, Island Reversal & Island Cluster Reversal tops & bottoms are not one of the most reliable candlestick reversal patterns that I've traded over the years & they also offer a very attractive R/R entry as the risk of loss if stopped out is minimal compared to the gain potential, should the pattern play out.

$NDX daily Oct 27th

$NDX daily Oct 27th

 

For example, should QQQ gap below this recent cluster of candlesticks soon (which is so far, defined by Friday's lows), one could establish or add to a short position with a relatively tight stops (my preference would be just above the top of the pattern while a more aggressive stop could be placed somewhat above the bottom of the price cluster). As discussed in the video, such a short entry would be for a multi-week to multi-month swing trade with my targets TBD should this, or any other decent evidence of a reversal in coming days/weeks occur.

At this point, TQQQ will be added as a Short Trade Setup with an entry to be triggered on any gap below 112.07 (Friday's low) on QQQ with a stop above 113.30 (6 cents above Friday's high). Targets TBD soon but one option for a quick trade would be to target a backfill of Friday's gap, covering just above Thursday's high of 109.80 in QQQ. Of course, should a gap down occur, one would have to assess whether or not a short entry targeting a backfill of the gap would be worth it based upon the entry price.

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Oct 27, 2015 11:06am|Categories: Equity Market Analysis|Tags: , , |1 Comment

One Comment

  1. Compression Point October 27, 2015 11:38 am at 11:38 am

    I bought some calls on SQQQ. The daily RSI on ^NDX is 71, so I’m hoping for at least some pullback. Of course AAPL earnings today could make me look like a fool.

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