3SOF

The most difficult thing for me at the July 18, 2006 low was the fact that getting there was so ridiculously easy, it seemed like a no brainer.

Back on Page 1 in this folder, about 8 posts down, at the weekend of May 12, 2006, I posted at least 10 reasons why I thought that the QQQQs were in trouble.

In subsequent posts, several of us discussed the various bearish patterns, and the bearish targets IN PLAY as each pattern emerged.  At the July 18, 2006 low, the last of our pattern targets, 35.56, had MADE within two cents: the final low was 35.54.

That was it?

Yep.

That was the final low of what I thought would be a 4-year cycle low into October, 2006?

Yep.

You're joking.    

Nope.    

Next post: How a "no brainer" can be so difficult!

Although the last of our targets in the daily chart had MADE at the July 18 35.54 low, the BIG difficulty that I had was that, in the weekly chart, we had broken a year-long H&S Top, in order for the 35.54 to get MADE.

Somewhere in this thread, I posted a "possible" Bearish Wolfe that lead to much lower prices into the Autumn, 2006 4-year cycle low, and with this H&S Top completed, I saw almost no chance of the July 18 low being THE low for 2006.

As I've said many times, this is another great example of why I never try to predict anything, but rather, try to follow the market, as best I can!



I also try to learn from my mistakes, so that I don't repeat them.

At the July 18 low, it was very difficult, if not impossible, for me to view this chart as bearish, which in retrospect, was fine.  It was bearish.

The important thing was that I "got with the program" as we moved along though the autumn, and played charts that were bullish, but I still had a difficult time being as bullish as I should have been.

We look at that time-frame next.

Where I began to "get with the program," was when we got back above the neckline of the 1-Year H&S Top, and took out the high of the first Bear Flag/Rising Channel (in green).

I had mentioned that there was record short interest last summer, and the chart now was beginning to smack of a HUGE Bear Trap fakeout at that July 18 low.

As we now know, it was.

The next two patterns (in blue, and in red) also were Bear Flag/Rising Channel patterns, and when you're expecting an Autumn 4-Year Cycle low, I found it very, very difficult to view those upside breakouts as bullish, but I also avoided get stuck in a bearish mindset.

Quote from: Melf Elf on September 11, 2006, 05:07:12 AM
maxi,

I'm still uncommitted.   Neither team has made me a good offer.   

Whether we rally back toward the top of this Bear Flag and the 200DMA and broken May support just above 40.00, or whether we break the Bear Flag this week to the downside, and test the 50DMA, the QQQQ is buliding a nice base here under 40.00 for a year-end rally, or rally in early 2007.

Even though I was trying to remain open-minded about rallying to a new high at the end of the year, look at the 3 patterns that I've drawn in this chart, coming off the July, 2006 low.

In the next post, I'll show you an entirely different way of looking at those patterns.

Part of technical analysis is "the art of interpretation."  Back in September, I wasn't the least bit artful, but Maxi (rickjust) sure was!  Applause. 

Back on the last page on September 12, he came so, so close to finding this Bullish Inverse H&S pattern (that I didn't find, either), but Maxi thought that the pattern was blown! 

It wasn't.  It broke out September 12, and I'm still wondering how I missed it.  Hindsight is 20/20, isn't it?

I certainly missed it, at least in part, because I was expecting a 4-Year Cycle low to come in, and thinking that we'd get some sort of re-test of the July 18 low.

"Don't think, Melf, look at the chart!" 

Summary:

My main point in this review, is how important it is to try to remain objective, and not be overly influenced by our own opinion, or by what we're hearing in the news at any particular point in time.

As objective as I was trying to be last summer and autumn, I clearly can see that I was strongly influenced by my expectation of a 4-year cycle low, and I think that clouded my vision so that I didn't find this Bullish DOUBLE Inverse H&S Breakout.

Those can be very powerful, as some of you will remember in my recent trade in VPHM.  That DOUBLE Bullish Inverse H&S breakout was very powerful, and this one in the QQQQ was also.

Looking at this chart from that vantage point, we can see how the QQQQ had such a strong year-end rally, and rally into 2007.

Next, we'll look at the current time-frame in the QQQQ.

EDIT: I'm starting to fall asleep at the wheel, so I'm going to take a break, but I'll finish by this afternoon.  We need a Snore Face on the toolbar.

"If past is prologue..."

Just as the six downside pattern targets that we had IN PLAY after the mid-May, 2006 breakdown MADE with no problem, all of the upside pattern targets off the July 18 low MADE with no problem, as well.

The last of the bullish targets, 44.23, MADE the day before the November high of 44.86.

Next, we'll look at November, 2006 to the present.

After all the upside targets MADE, we got a Double Top, or "M" Top at 44.86 and 44.76, in November and December, 2006 that put a target of 41.76 IN PLAY.

"Targets against the dominant trend are less like to get MADE."  The trend was bullish, and the target didn't get MADE.

Instead, the QQQQ took out 44.86 and 44.76 highs to the upside, so now we have to add the height of the pattern to the upside breakout, and that put a target of 46.26 IN PLAY.

Notice that the pivot of the first "M" Top was 43.26, on December 1.

After the January 16 high of 45.40, where did the first selloff end?

43.29.

What does that tell us?

43.26 wasn't support we broke the first Double Top, but that Double Top got reversed to the upside, and now 43.26 has been re-established as support, which it "should have been" back in December.

That's at least suggesting that we don't want to get too bearish at that 43.29 low, on January 26.

Off that low, we went up and put in another Double Top, or "M" Top, and on the bad news out of China, we broke short-term key support: 43.26 - 43.29.

Now, that isn't support again!

Do we see any "character change" in the market, given that type of action?

Most definitely.

Coming of the July, 2006, there was no nonsense of that sort, at all.  Patterns formed, broke out to the upside, and the targets got MADE with no problem.

We've got a problem here:

1. 43.26 - 43.29 isn't support here.  On Wednesday and Thursday, we made intraday forays above it, but couldn't close it out above it.  Friday, we didn't get near it at all.

We still "could," but in the interim, we've got...

2. The "lost target" of 41.76 back IN PLAY, from the December 22 breakdown.

3. 41.18 IN PLAY for the second Double Top breakdown, below the 43.29 pivot between the 45.40 - 45.55 highs.

4. EDIT: The bullish target of 46.26 didn't get MADE, and is CANCELLED on the break of 43.26 - 43.29.

That's another bit of evidence of a "sea change" in the character of the market.

So, 43.26 - 43.29 certainly look "pivotal" both figuratively and literally.

If we CLOSE above that level, I would rate the short-term picture as neutral.

Below it, as we are at Friday's close, the short-term picture is bearish, with the two downside targets of 41.76 and 41.18 IN PLAY.

The 200DMA is 40.9948 at Friday's close, just below the 41.18 IN PLAY.

Oh Melf how we miss you, and how tickled you would be (and I'm sure you are) by the QQQQs toying with us. 

On Thursday we had a day of indecision as the market started to show signs of toppiness off of this rally, and the high that day was where?  You guessed it, at 43.24, 2 cents below Melf's 43.26 resistance, and it hit this level 3 times during the day while forming a small ascending triangle that it eventually broke down from. 

Then Friday, with the Jobs report coming in and all, the QQQQ''s gapped above this resistance, drawing all those early morning bulls in in the pre-market, but boy did it charge them for their over-exuberance!  The QQQQs headed lower, eventually bouncing off Wednesday's triple low of 42.65-66, before rallying up to $43 to close the day.  This breakdown also broke out of a rising wedge (to the downside) that had been forming all week.  This rising wedge breakdown puts a target of 41.72 IN PLAY, which coincides quite nicely with Melf's M top target:

Math - pattern high: 43.34 - pattern low: 42.06 = 1.28
Break of pattern at 43 - pattern range of 1.28 => downside target of 41.72.

For the moment, it looks like 42.65 is key short term support, so once again the chains are set.  rally above 43.29 (well 43.34 to take out Friday's high) or break below short term support at 42.65, which would suggest we may see a move into the 41.70 range.  Go on QQQQ, test us!!

Nice weekly chart. SHORT.
http://bestchartsonline.com/

Semiconductors.......
There has been a HUGE divergence between the QQQQ's and the SMH.. The biggest I've ever seen !
These two sectors always move in tandem, over time.

QQQQ to Nasdaq Composite: See Ya
EVERYONE KNOWS IT'S A MARKET of stocks, not a stock market.

But that old saw even holds for traders of index funds, notably those based on the Nasdaq Composite Index and the Nasdaq-100.

So far in 2007, the Nasdaq Composite's total return is up 19.09%, while the Nasdaq-100 -- the basis for the popular QQQQ exchange-traded fund, is up 27.74%.

The outperformance of the QQQQ is so significant that it has persuaded most options traders and investors to consider less-diversified investment strategies, Credit Suisse derivatives strategists Ed Tom and Glenn DeSouza said in a recent trading advisory.

The ETF (now officially called PowerShares QQQ Trust due to a licensing marketing agreement) consists of only the top 100 Nasdaq nonfinancial stocks. The Nasdaq Composite (IXIC) consists of all the listed Nasdaq stocks, which now totals about 3,000 companies.

These distinctions are probably little surprise to most options traders, who tend to trade the Nasdaq-100 more than almost anything else. But the performance divergence merits a closer look because most investors view the QQQQ as a proxy for the entire Nasdaq. In fact, there are important differences between the Nasdaq-100 and the Nasdaq Composite.

"The majority of the nearly 900 basis points [nine percentage points] of outperformance is mostly attributable to significant returns in only a handful of technology names including Google, Apple, Research in Motion and Microsoft," according to a recent trading advisory from Credit Suisse's derivatives strategists.

Almost as important as what's in the QQQQ is what's left out. With 65% in tech stocks, which have been among this year's leaders, the QQQQ also has no financial stocks, which have been devastated by the subprime collapse and its attendant effects. Financials have a heavy weighting in the Nasdaq Composite as well as the Standard & Poor's 500, and indeed have weighed down their performances.

To look even closer, the most influential stocks in QQQQ are: Apple, which comprises 12.27% and is up 120% year-to-date; Microsoft, which makes up 6.44% and is up 23% year-to-date; and Google which makes of 5.6%, and is up 58% so far this year.

In the Nasdaq Composite, Apple only makes up about 3.91%; Microsoft, 8.31%; and Google, 4.08%. What explains the difference? The answer is technical, and has to do with how the index and ETF are calculated, which changes the percentage weightings of the components.

"The divergence in performance between the Nasdaq-100 and the broader Nasdaq this year is particularly significant," according to Tom and DeSouza. "The fact that they have larger relative weights in the smaller subset benchmark have made owning the more highly concentrated Q's worth being less diversified so far this year."

Sometimes diversification isn't a hedge against stupidity, as investor Warren Buffett once wryly observed, but an impediment to performance. As many options traders like to say, some of the world's richest people are those with the most highly concentrated stock positions, such as Buffett and Microsoft's Bill Gates.

QID...

Technology...

The Nasdaq 100 wide double bottom reversal offers a target of 1550, calculated as
1300 + [ 1300 - 1050]. Retracement respected the new support level at 1300, and Twiggs Money Flow (21-Day) broke above 0.1, both indicating a strong up-trend. The primary trend may be up, but downside risk remains elevated until there is confirmation from the broader market (the Dow or S&P 500) — or stronger earnings from index leaders like Microsoft.

Nasdaq 100: Primary Up-Trend

Testing resistance...

Technology

The Nasdaq 100 is retracing to test the new support level at 1300, after completing a wide double bottom reversal to a primary up-trend. Respect of support is likely to confirm the up-trend, offering a target of 1550, calculated as 1300 + [ 1300 - 1050]. Failure of the new support level, however, would warn of another test of primary support at 1050.

Technology
The Nasdaq 100 is stronger than the Dow and S&P 500 — though it does show a weak bearish divergence on Twiggs Money Flow (13-Week). Reversal of the indicator below zero (or the index below 1340) would warn of a secondary correction.