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
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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.Â
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
