Q Steps

The simpler we can keep our trading, the better off we will be. One way to do that is to learn to look for what I call the trading step in a stock or index. The Qs traded from a high of 31.63 in Jan to a low of 25.63 in March, which is exactly 6 points or 2 x 3 points. From the low in March, the Qs have advanced just shy of 5 x 3 points to a high of 40.18. 15 points would be 40.63. Some traders call these types of moves boxes, but I like to think of them as increasing steps in perceived value. Why would a market move in such an obvious (at least in hindsight) incremental fashion? I don't know. It can't just be due to options and futures positions since this type of thing happened before derivatives existed. Nevertheless it seems to be a part of market behavior.

Using this we can project the top of the next step, should the Qs move higher, to be 43.07 to 43.63, pretty close to the July 08 low of 43.30. As big a rally as I thought was coming in March, I really could not have envisioned that the Qs could make it back to 43.30 this quickly, but it does appear to be a real possibility now.

We have completed the first 5 trading days of August with a 5 day range of 0.93 points. A break of 39.25 projects an August low of 37.96 to 38.68. The 38.2% RT of the rally from the July low is 37.93. This would appear to be the nearterm downside risk.