Is The Market Rally Ready To Shift Into Reverse?

Shift to reverse

Shift to Reverse

Are stocks off to the races or set to reverse course?

Analysis and Outlook for the QQQ (Nasdaq 100 ETF):

The Qs are rebounding sharply from their Christmastime low to today’s high. We see shorts getting squeezed and the weaker hands being weeded out.  Tech stocks have steadily moved through resistance to reach higher levels of supply. In the aftermath of December’s waterfall decline, they’ve driven a good distance up in a short amount of time.

A big boost in central bank balance sheets, in large part courtesy of stimulus by the People’s Bank of China, has pumped in the liquidity needed to stave off impending disaster for investors.  The key question now is, “How high are we going to go?”

A Quiet Climb

As you can see on my daily Japanese candlestick chart below, QQQ is rebounding on low volume.  This tells us the move up is still unconvincing.  Such light volume trading allows larger players to push the market around.  QQQ is also tracing out a bearish rising wedge pattern.  Price movement narrowing in this way is a sign of flagging momentum.  We’ll be watching volume on a break of this pattern to indicate force behind the move.

QQQ chart by Steven Sarnoff

QQQ chart by Steven Sarnoff, h/t stockcharts.com

Now that we’ve gotten close to it, the longer-term moving average (250-day MA) may act as a magnet to pull price up.  A natural 78.6% retracement of the December move down also sits just overhead at $166.54 (horizontal dashed line on chart).

The numbers I’m watching

I see underlying support at: $158-$162.50, $151.93-$153.05, and $143.50-$148.79.  Key resistance is at $166.54-$169.28.  Above that, $173 and $175-$178.

US markets are closed Monday for the Martin Luther King holiday.  A lot can happen over a long weekend.  We also have a super moon with a lunar eclipse.  Cycles are set to turn.

Just because we are at the time for a turn, there is no guarantee we’ll get it or that a turn will be sizeable.  The best we have is probability.

Buckle up.  We shall see if that’s good enough.

Good luck in your trading and have a great weekend!

Best regards,

Steve

 

 

 

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