Comments on: QQQ: Putting Today's Rally Into Perspective

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 19:32:10 +0000

Great question but no, not even close (about 5-min divergences being on par with daily or weekly divergences). I like to say that divergences, as well as just above any other technicals such as bullish or bearish charts patterns, oversold/overbought conditions, etc., and the expected move from those divergences, patterns, etc, are commensurate with the time frame of the chart they are on.
E.g.- A bullish falling wedge on a 5-min chart would be good, if a breakout is triggered, for a trade lasting just a few hours to a few days whereas a breakout of a falling wedge on a weekly chart would likely be the catalyst for a rally lasting months & maybe even years.

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 19:27:38 +0000

In reply to Dean Drummond.

Typically, I try not to read to much into any one-day disconnect from a usual correlation between two securities, such as the stock market with Treasuries or gold. However, it does speak to the resiliency of the trend in those risk-off assets, especially gold (+0.63% vs. +0.01% on TLT as I type). That indicates that the smart money isn’t buying this rally, at least not completely, as money is still flowing into those risk-off assets today.
Again, one day doesn’t make a trend but something to monitor going forward. Thx for pointing that out.

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 19:22:26 +0000

In reply to Deva. G-luck. I added to an SOXS short position that I started scaling back into at the bottom of those SPY & QQQ gaps & added another lot here today as those gaps have now been backfilled. I might do another video covering the semiconductor sector but this time covering the individual stocks vs the ETFs and $SOXX sector as I did in the last video

By: jasonkeene31

jasonkeene31 — Thu, 08 Aug 2019 19:06:31 +0000

How significant is divergent on a 5 min chart? I was seeing divergent highs on QQQ 5 min charts. From an intra-day view point would that hold the same weight as divergent on a daily chart for a larger weeks to months trend change ?

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 18:43:09 +0000

Is there any significance to GLD and TLT both positive on the day, and don’t these usually track opposite market trend?

By: Deva

Deva — Thu, 08 Aug 2019 18:19:50 +0000

In reply to Dean Drummond. Bought some SOXL Sept 150 Puts today.

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 17:24:24 +0000

In reply to Nana.

I’m sorry but I’m not sure that I understand your question. The PPO & MACD can be used in several ways to help forecast or identify trend reversals such as divergences, bullish or bearish crossovers of the PPO/MACD line & the signal line, bullish & bearish crosses above/below the zero line, histogram divergence, etc. Then you have various time frames in which to use those momentum indicators.
Right now, I’m focused on looking for evidence of a reversal via bear price action, such as a bearish candlestick reversal pattern and/or trendline breaks on the intraday charts of both SPY & QQQ or maybe a big red reversal candle following a rally into resistance.

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 17:18:38 +0000

In reply to dayoub.

Congrats on that SOXL trade!
What do you mean, “Cannot find full post?” There should be two paragraphs in this post, one above the QQQ chart & one below it. Are you not seeing the 2nd paragraph?

By: Nana

Nana — Thu, 08 Aug 2019 17:16:52 +0000

@rsotc Randy, Is SPY/QQQ showing trend reversal as per PPO or MACD. I tried checking on chart. But, unable to correlate proper points.

By: Dean Drummond

Dean Drummond — Thu, 08 Aug 2019 17:16:43 +0000

Once again, while only time will tell if this is just a snap-back rally within a larger correction with more downside to come or not, if it is, the way things work is that you get these big green candles very shortly after a very sharp correction, such as the one we just had into Monday’s lows, mainly for two reasons:
1) As prices move higher, buying begets more buying as shorts that didn’t cover at or near support on Monday, especially those that initiated short positions on or just above Monday’s lows, are getting squeezed hard & as they cover their positions, that buying (buy-to-cover orders) causes prices to rise & triggers a vicious cycle of buying (more buying = higher prices. Higher prices = more shorts being squeezed).
2) Invariably, especially early in a correction such as after the initial wave down as we just had, you get the dip buyers stepping in once it clearly appears to them that the correction is over. That ‘natural’ buying coupled with the buying from short-covering, it the reason that the biggest single-day gains almost always come during corrections and bear markets and not during bull trends.
Whether they (the dip buyers) are right and the correction is really over or this is just a typical counter-trend rally before the next major leg down will only be known with certainty in hindsight. However, if it is, then the reasons that I would expect a very swift & strong drop if so are pretty much the same reasons that I cited for this rally above but in reverse:
Following a short-squeeze, the weak-handed shorts are cleared out of the market, reducing short interest which then paves the way for a much larger & deeper drop than if the market still had a higher short interest as short-sellers are the only “guaranteed” buyers of a stock as they must, at some point, close out their position (which entails buying the stock). The lower the short interest on a stock or the market, the fewer short-sellers there are to step in & book profits during a drop.
Likewise, should the market reverse soon, once the longs that stepped in to buy the dip start to go underwater (i.e.- SPY & QQQ fall back below today’s lows), they will begin to sell to cut their losses, which in turn creates a vicious cycle where selling begets more selling as prices move lower & more stops are hit which then causes prices to fall further, etc.. until once again, an equilibrium point between buyers & sellers is reached & then shifts back to the buyers, at which point the next counter-trend rally (or the end of the correction) sets in.
If you look at the two examples from late 2018 in the chart above, you will see how after those two big green candles were faded, the selling then immediately started to accelerate, supporting what I said above. Hence, that is one thing that I will be watching for in the coming days (a move back down below yesterday’s close around SPY 288 & QQQ 183.60, which is now very important support).