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Pre-Market Comments- QQQ

With QQQ closing just under 2% above the key 100 target/support level, I wanted to share a couple of responses from the trading room. Bottom line is that although a solid & sustain break & even a melt-down scenario is certainly a possibility, my current belief that that the market is at or very near a meaning reversal & although I plan to study the charts further today & remain open to all possibilities, my focus right now will be to start aggressively lowering stops & booking profits on my shorts while ready to pull the trigger & move to a net long positioning for a bounce off support, should the charts confirm. My recent replies/market thoughts below:

(reply to a question in the trading room yesterday around mid-day):

My best guess is that we will likely go down by Friday. I may very well be wrong but my thought process is this: During strong downtrends (just as with strong uptrends) bullish (bearish) chart patterns & trendline breakouts often prove to be false buy (sell) signals. That 15-minute QQQ downtrend line breakout the other day, which was a very well-defined & probably well-watched TL, which was also confirmed with positive divergence, could only be interpreted as bullish. However, being that nearly all trend indicators are bearish, the odds that the breakout above that downtrend line proves to be a bull-trap is well above average IMO. Not only that, but I believe that the Aug & Sept lows (100ish level on QQQ) is like a powerful magnet or a black hole (for lack of a better analogy) at this point & I would be quite surprised if prices didn’t at least touch that level once more. Being that the Q’s are already about 2/3rds of the way to that level since breaking down below the key 109.50ish level (bottom of the recent trading range & now, big overhead resistance), I think that the impulsive selling is likely to resume shortly. However, it’s just too hard to say that even if I am correct, that the market will or won’t hold up into OpEx by the close on Friday.

(reply to a private message within the trading room earlier today):

As far as how much, if any, downside left in the Q’s, I think that the 100 area is like a magnet, likely to pull prices in very soon, quite likely today or tomorrow. I might post some additional comments but in a nutshell, my best guess is that since so many eyes are watching the 100 level, the Q’s will either reverse just shy (we closed just under 2% above that level yesterday, so it’s possible that we start moving higher from here) or we overshoot that level, before sharply snapping back above it & starting the a decent tradeable rally. Can’t rule out a melt-down scenario, should the Q’s just slice right thru 100 but I think bounce off or slightly below/above the 100 level is the most likely probability at this time. Either way, shorting at this point with as oversold as we are and more importantly, as close to a key support level as we are is simply not objective IMO.

(end replies)

Should the charts convince me that the 100 support is likely to give soon way following by a substantial move lower, I will do my best to communicate my thoughts asap.  My next downside target for QQQ (if/when they make a solid break below 100) is the 94.50 area, which I do believe is likely to be hit in the coming months, regardless whether or not we get a decent counter-trend rally before then). For those in the trade, be advised that I may decide to officially close the TQQQ short soon, possibly as early as today.

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Jan 14, 2016 9:00am|Categories: Completed Trades - Short, Equity Market Analysis|Tags: , , |2 Comments

2 Comments

  1. jupiter January 14, 2016 9:13 am at 9:13 am

    Hi Randy,

    Should we get a rally either this week or next, how can we know if that rally will be sold, and we reload to short?

    Thank you.

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  2. rsotc January 14, 2016 9:45 am at 9:45 am

    jupiter- As close as we are to the 100 level (closing 2% above yesterday), that may have been it so any meaningful rally that starts soon could get enough traction to last for weeks. The short reply is that I just don’t know, at least at this time, the answer to your question. One thing that I try to force myself to do in trading is to step aside when my read on the charts isn’t very good. Chances are that most of the “meat” on the bone for the TQQQ/QQQ short trade has already been consumed, at least for the initial leg down (assuming that we are still in the early stages of a new bear market with much more to come). If so, I’ll just have to determine the next objective entry as the charts develop.

    Regarding the current (Active) TQQQ/QQQ short trade, the most objective entry was the original short which was posted on Oct 28th (less than 2% from the top). The second most, but still very objective entry was the breakdown of that that Oct-Jan sideways trading range & especially the backtest which occurred shortly after. From there, the R/R steadily diminished with each tick lower to the point now where the R/R most likely is skewed to the long-side, despite the fact that the markets are in a vicious & clearly defined downtrend. Skewed towards, but not heavily or clearly favoring the long side… at least not yet. Again, to your question, I don’t have a good answer just yet but will continue to study the charts and communicate my thoughts as soon as I have an opinion that might be worth sharing. G-luck on your trades!

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