QQQ (Nasdaq 100 tracking ETF) has made an impulsive breakdown below the bear flag pattern that was posted early today on the first 60-minute chart below. Bear flags are continuation patterns with essentially 3 waves: The first wave down is marked by very impulsive selling on a marked increase in volume. After the security becomes oversold on the short-term time frames, often reaching a support level at the time, such as QQQ & many of the leading FAAMG stocks did on Friday or early Monday morning, a relief rally occurs forming a pattern which resembles a flag.
One of the signatures of a bear flag is that the flag occurs on diminishing volume, such as was the case in QQQ on the rally off the lows on Monday & into today. The next leg down is then triggered by a break below the flag pattern & is typically accompanied by yet again, another sharp expansion in volume along with impulsive selling. In fact, quite often, the move out of the bear flag will nearly mirror the impulsive move leading up to the formation of the flag pattern. To calculate the measured target for a bear flag, you simply add the distance of the flagpole (i.e.- the impulsive move leading up to the formation of the flag) to the highest point within the flag.
I find that more often than not, the measure move for a bear flag (as well as a bull flag) will coincide with a key support (or resistance) level such as price support, trendline support, a key Fibonacci retracement level or any/all of the above. In this case, the measure target for the bull flag pattern highlighted earlier today comes in just just of my T2 target/support zone. Should QQQ continue to move down to that level in the coming sessions & find support at or near my T2 zone, that would most likely put in a higher high on the PPO, MACD, RSI, etc.., putting positive (bullish) divergences in place that would set the stage for a tradable rally, allowing me to reverse from a net short to net long position on my Nasdaq 100 & Russell 2000 positions.
On a closely related note, all of the market leading FAAMG stocks reversed cold right at or very near key resistance levels following the recent bounce off the early price targets/resistance levels that were posted in advance of Friday’s breakdowns in QQQ & all of the FAAMGs.
Not sure if you caught this or not but after the Nasdaq 100 started it’s biggest slide in a long while, an analyst at Goldman Sachs came out to discuss a recent revelation that he had: The market was no longer being lifted by the FANG stocks but rather a new group of stocks which he came up with the acronym FAAMG stocks (yes, the same 5 companies that I’ve been closely following & posting analysis on for months). In fact, not only is this “new” buzz word starting to go viral since Friday (do a quick google search of FAAMG stocks), but Investopedia.com even official added the term to their extensive Financial Dictionary on last week , crediting Goldman Sachs as coining that term.
At least one financial journalist, Senior Markets Reporter Akin Oyedele at Business Insider, did his fact checking when reporting on the new term, also adding some interesting statistics on just how much of the YTD gains in both the SPX & NDX have been attributed to just those 5 companies, while crediting the original source & reasoning behind the importance of the FAAMG stocks in this brief article. (much appreciated Akin!)