Trade The Qs? Then Consider This…

  • May 25, 2004
  • Derrick Hobbs

Consider
The  Possibilities

This is NOT a trade set up.
This is simply a pondering moment, and a little bit of chart observation.
Through this we can build a longer-term map for trading possibilities as we
approach certain levels in the Nasdaq 100 Tracking Stock
(
QQQ |
Quote |
Chart |
News |
PowerRating). Let’s bullet
point this:

  • In the first quarter of 2004 we have
    boxed ourselves into a range with a high of 39 and a low of 34.

  • Note the 5 consecutive weeks where QQQ
    hit the .618 to .786 retracement of our high to low from the first quarter and
    ultimately failed and traded down about 10% to about 34. This
    zone represents a significant price area for the markets to deal with.

  • If this market can trade up and close
    above 38, it will be running into an Air Pocket scenario that will allow this
    index to float freely, and quickly up to the 40 to 42 level.

  • That 40-42 level represents my upside
    target for the year. It represents a very critical zone….why?

I have outlined, in red, a pattern
that would develop IF this air pocket is hit and we ramp up to 40-42. It is a
Bearish Butterfly. This pattern is very common around market tops and bottoms,
and is very rare on weekly time frame charts like this. So be aware of it.

To summarize:

“font-style: normal; font-variant: normal; font-weight: normal; font-family: Arial”>     
The zone from 37 to 38 is extremely
important.

2.     
Air Pocket from 38 up to 40

3.     
40-42 is a Bearish Butterfly pattern
completion

4.     
QQQ hits the high for the year and
trades down/sideways out of that 40-42 zone.

My next column will focus on
the flip-side scenario…if we trade down from here. Just remember this is a
“what if” scenario along with key resistance zones and air pockets. Keep this
within viewing distance as you create your nightly trading plan while trading
the Nasdaq 100.

Derrik