Sell QQQQ resistance zone

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and more) for the next day's trading? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1. 

The last commentary was Monday, 8/14 ("Time Zone This Week"). The anticipation was that the "SPX will, at a minimum, test the top of the two-month trading range this week, and maybe even squeeze the shorts hard enough to take it higher, which would be a lucky break for those investors who have done nothing so far regarding reallocation of equity exposure." That is precisely what the market did this week, but more importantly, what is your plan?

The time zone is 8/14 - 8/17, and the SPX had held the 1262 (8/11) 200-day EMA after the previous 5-day decline, where the SPX declined five of six days. It was also a minor price zone, in addition to option expiration this week. FYI, for those of you familiar with my strategies, the current SPX rally from the 1219.29 low was an RST. The PPI and CPI were the excuse, as one number means zip. In fact, the last CPI was the worst year-over-year change since 1995, and of course the market immediately sold off on that for a few days. It's been knee-jerk reactions on every economic number.

When certain sectors/groups are underloved and oversold with large relative short positions, there are some major buy-side accounts that like to squeeze the "Street."  That was very evident with the tech sector this week. Many of the big percentage gainers getting squeezed are stocks like BRCM, which had declined -56% from its bull-cycle high of $50 (3/3/06) to $22 (7/26/06) and has rallied to 30.88 (+40%) this week. Marvel (MRVL | Quote | Chart | News | PowerRating) is another example that had declined -55% from its 1/27/06 bull cycle high and has rebounded +27% so far. Both BRCM and MRVL had retraced to their .618 zones relative to the October 2002 bear market lows, so there is a case to be made for institutional interest at these levels, especially when they can squeeze shorts doing it. There are many other technology stocks in similar situations, and aggressive money managers are anxious to catch the tech lows, or at least get started a significant position, as they expect the techs to be a leader if the Fed accomplishes a soft landing.

However, the QQQQ, which hit 39 yesterday, has significant resistance from $40 - $43. It made a double top at 43.31 (1/11/06) and 43.05 (4/5/06). Also, 43.13 is major resistance from the high during the week of 12/3/01. The break below 40 was accompanied by heavy volume. The 4-week advance is not with above-average volume. There are a lot of major sellers waiting to unload into this zone. It is my opinion that the QQQQ will make lower lows ("C" leg) below 35.54 (7/18/06) to a minimum of 34.25 - 33.75, but most likely to either the 32 - 31.50 or 29 - 28 zones. 

The major indices are obviously short-term overbought here and the SPX has entered the beginning of a key price zone and is not where you initiate any kind of buy positions.

Have a good trading day,

Kevin Haggerty