QQQ Low Volume Indicator Warns of Impending Correction

On several occasions over the last several years I have published some indicators warning of pullbacks & corrections on both SPY & QQQ. These historically reliable indicators are triggered when trading volumes, using a moving average to filter out any out any potential whipsaw signals & help highlight a trend of falling trading volumes vs. what might prove to be just a one-day drop, possibly related to an abbreviated or pre or post-holiday low-volume session, drop below a certain level.

The last low-volume sell warning was published in this post on August 3rd. From there, QQQ went on to effectively* move higher for just 8 trading sessions before topping (*QQQ hit a high of 117.97 eight trading sessions after that post, traded sideways for the next 16 sessions peaking out at 118.12, virtually an equal high, before falling sharply over the next 4 sessions). That previous chart has been re-posted above (first chart) in order to see some of the sell signals that were cut off on the updated (second) chart below. As the updated chart illustrates, this is the longest consecutive period where the 10-day EMA of the volume on QQQ has traded below the 22,249,980 share average volume level.

This extended period of unusually low volume coupled with negative divergences, bullish sentiment extremes (a contrary indicator) and other red flags continue to warn that despite what appears to be a bullet-proof uptrend, the risk of a potentially swift & powerful correction is substantially elevated at this time. As such, one might consider tightening up stop on existing long positions with a high correlation to the broad market and/or preparing a list of shorting candidates to use as either hedges to existing long positions and/or pure-play short trades.

Feb 13, 2017 3:28pm|Categories: Equity Market Analysis|Tags: , |1 Comment

One Comment

  1. joefriday February 13, 2017 7:00 pm at 7:00 pm

    Nice work!


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