Tuesday, August 25, 2009

A Quiet Week

I think most of Wall Street must be on vacation as the trading action has been fairly dull this week overall. There is an old adage: "Never short a dull market". I think that adage should be heeded today. A significant correction will occur, but there is just no evidence that it will occur any time soon. That may change next week, but I would not count on it. New NYSE 52 week lows remain in the 0 to 5 range most days, the McClellan Summation index remains at high levels, advance/decline lines continue to rise. I suspect that we will see increasing demand for stocks the first week of September and a surge into an October high. I continue to wait for another opportunity to add to index long positions, even at these so-called "nose-bleed" levels.

Oil just cannot get going, which is as I expected. Negative divergences are developing and traders should be on the look out for a move below the July lows.

Gold continues to taunt us by not showing its hand. Time is running out. It can't do this forever. Frankly, I will be glad when it's over. I have been holding this DZZ gold short position since I initiated my first partial position on June 3, going on 12 weeks now. Some traders use a time stop. I don't. The key is consistency. Either use one all of the time or not at all.

Finally, the Qs are approaching significant resistance at the March 08 lows at 41.05. This is a critical area that the Qs must hurdle in order for the uptrend to resume. If they are successful in overcoming this level, expect another short covering squeeze to at least the July 08 lows around 43.30. I suspect that may be the end of run as it is also around the 61.8% retracement of the entire decline from Oct 07 to March 09. From that level a 50% retracement of the rally followed by a measured move higher in 2010 would put the Qs back at the 2007 high. A highly probably event I think.

4 comments:

dave said...

Q's daily BB's pinched at narrowest since March bottom & did not expand on this recent rally ... yet

dave said...

Mind-boggling. Although i usually look at weekly charts at least twice a week, i hadn't looked at a simple red & green QQQQ weekly bar chart w/o MA's, studies, or other embellishments, etc.

It's amazing how few red bars there have been since the March lows.

Although 7 out of the 24 weeks have been red, 6 of the 8 came betw May & July in an ABC formation. It looks incredibly intermediate-term bullish.

Regards,
dave

dave said...

Despite looking at wkly charts infrequently, i love them for one simple reason - they take a lot of the noise, the chatter out of the picture. Things jump out at you.

Five or six yrs ago i read somewhere that institutions don't look at any charts shorter than a wkly timeframe.

R. Craig Pritchard said...

Yes the weekly charts look incredible in my view. The weekly Qs formed an outside bullish reversal last week.

It has been my observation that trading the daily charts is generally unproductive. The weekly volatility as measured by the 10d ATR is only about double that of the daily 10d ATR (not 5x), and the weekly charts trend better.

I think traders would be better served trading the weekly and up, and/or the 60min and down.