As a follow-up to the previous post, I wanted to clarify what might be construed as conflicting comments. Last Monday, while the QQQ was still trading well within the rising wedge pattern as shown on the recent 4-hour charts, QQQ/QID was added as an Active Short Trade in anticipation of a imminent breakdown of the wedge. In this follow-up post to that trade yesterday, I stated that with the Q’s already down over 3% and over half-way to my first price target, that adding short exposure to the broad market shorts was no longer objective. Fast-forward to the post made just before the market opened today, less than 24 hours after that previous post suggesting that shorting the broad markets was no longer objective, and I stated my intentions to fade the gap today. So which is it?
The answer is simple, the markets are dynamic and so is my trading. Yesterday the Q’s were in what I refer to as “no man’s land”. No man’s land is when prices are well past the buy (or short sell) entry trigger (e.g.-pattern breakdown) yet still well above the next target. One exception to this might be shorting a consolidation pattern that has set up since the entry to the trade, such as a bear flag pattern, assuming that there is still plenty of potential profit left in the trade. However, that wasn’t the case with the QQQ yesterday. Today, however, is a completely different (technical) story as the Q’s have now bounced back sharply and are currently trading much closer to the underside of the recently broken bearish rising wedge pattern.
Adding to the case for a new objective add-on to the QQQ short position is the fact that the $SPX is now backtesting it’s recently broken, even larger (hence, more significant) bearish rising pattern. Taking a closer look at the updated QQQ 4-hour chart shown here, we can see that there is a nice horizontal resistance zone (dotted white lines) that lines up with the 61.8% Fibonacci retracement level from the most recent move down. Many counter-trend bounces will typically terminate at the 38.2, 50, or 61.8% retracement levels. Although the 61.8% is a very solid, well defined level, the Q’s gapped up to the 50% level today and as such, could very well stop there (especially with the $SPX backtesting the wedge). I hope this clarifies any confusion regarding those previous comments made regarding the broad market shorts.