Market Update QQQ

Here's another interesting price pattern, I still haven't changed my mind on the market being in a sub-intermediate, bullish trend and a very short term pullback being likely (with the caveat of some fundamental news sending the Euro up and dollar down out of Europe creating a Euro/ thus market short squeeze).

Take a look at the QQQ and keep in mind the last SPY update

For newer members this post isn't so important as to any near term trades, but it is important as far as market concepts go.

 So we have an intraday triangle in the QQQ today, this is a symmetrical triangle and as such has no inherent bullish/bearish bias, it all depends on the preceding trend which we can fairly say was up. As such, traders are looking for the triangle to break to the upside, some will enter the trade early in anticipation while others will wait for price confirmation of a breakout from the triangle which has already happened. This is where we get in to th concept of head fake moves and manipulation of technical patterns and technical traders because technical traders are so predictable, it makes it very easy for Wall Street to take advantage of them, that makes Wall Street somewhat predictable.

we see these head fake moves and manipulations of technical trading patterns on nearly every timeframe and almost EVERY reversal, whether it be a major primary trend reversal or just something like we are looking for now- a pullback, will more often than not see one of these head fake exercises.

The reason, 1) Trading is a zero sum game, for someone to win, someone must lose, 2) Institutional firms and even much smaller firms collect volume rebates so if they can create a break out or trigger stops (anything that creates volume), they make money and 3) A head fake move or a failed move often triggers a fast/strong reversal. I'll give an example below...

 Remember if you place your order with your broker (limit, stope, etc) Wall Street sees it and they now where all the stops and limit orders are congregated, it is those levels that they seek to trigger on these fishing expeditions. Imagine if the QQQ breaks to a new local high above recent resistance, that will bring in longs (as most traders chase breakouts), that triggers a swell of volume on the breakout to a new local high. Then imagine that the QQQ trades back below that breakout level, all of those longs are now at a loss and the lower price moves, the more longs are losing money, the more longs losing money, the more selling which in turn just creates a snowball effect and gets momentum rolling. As a friend of mine says, "From failed moves come fast moves". So not only is there money to be made in triggering these orders, but it also primes a reversal that sort of feeds on itself. Right now I'm wondering if they may try to take out local resistance before a pullback.

 The other option which is less ambitious (remember they have the order book in front of them and have a good idea of how far they can push), is to move above Friday's close which we already have or above today's intraday highs; this is not as ambitious, but it's the same concept.

Here on the 1 min intraday QQQ 3C chart (1 min is the fastest timeframe and the least important to the overall trend, the longer the timeframe, the more weight it carries) in the yellow box there is NO positive divergence sending the QQQ higher off the intraday lows. The red trendline is another potential intraday target to take out as it represents an intraday higher high, the failure of price below that level puts longs at a loss and the market can pullback with more momentum. I often say, "There's not much point in moving the market one way out the other unless it's going to make money by making a lot of people wrong", thus we often see moves that are more volatile than you might expect for a simple pullback.

 The 2 min chart doesn't seem to be much longer than the 1 min, but there's good information there. Last week at the green arrow we had 3C/price trend confirmation, which meant for the time being, there was nothing that was standing in the way of that move up. On the 27th we saw an intraday negative divergence and expected a move down or pullback, if you read the archives for the 27th, one thing I mentioned was, "Wall Street RARELY chases price higher, they buy weakness and for the positive divergences to continue, we'll need to see a pullback they can accumulate in to". That pullback came the next day and late in the afternoon we saw what appeared at first to be a rather weak positive divergence, but after looking at some of the longer term charts, we realized that there was a strong accumulation event which is not the norm. The norm is accumulation or distribution being a process as Wall Street doesn't want to give away their position with a bunch of large orders, so they take some time to accumulate/distribute. Thursday was unique in that this was an accumulation EVENT rather than a process and Friday the market zoomed higher. As you can see right now, in to that move higher we have a negative divergence, price is higher, 3C is lower. Still this is a 2 min chart and has implications intraday or day to day, it rarely has important trend implications, but is useful for tactical entries once we have a strategic plan.

 The 5 min chart is where we start to move away from intraday moves and see more serious moves that can last a day, several days and sometimes longer depending on the length and strength of the divergence. Here we have a leading negative divergence, leading divergences are the strongest (as compared to relative divergences). This suggests that we will see that pullback, no matter what is going on intraday or on the 1-3 min charts.

 Finally the QQQ 15 min trend showing a distribution process in to higher prices on the 18th-20th, then a positive divergence on the 22/25th, then a relative negative divergence on the 26th sending prices lower on the 27th and 28th, and a positive divergence as an event late in the day on the 28th sending prices higher last Friday the 29th. The tend of the 15 min chart is leading positive ad price is just below the former high at the 19th/20th, but 3C is significantly higher-this is one reason I believe the market has more upside potential.

If we zoom in and look at the same QQQ 15 min chart for the last 2 days, we see first a relative negative divergence at the red arrow and then a leading negative divergence today in the red box. This is suggestive of the pullback expected as of last Friday. While this may look negative for the QQQ, it is only negative in the near term as the trend of this same 3C chart above is leading positive at a new local high.

We'll take a look at all of this again after it develops and hopefully the concepts will make more sense.