Tuesday, May 30, 2006

QQQQ Trend Analysis - 5/26/2006


In our previous message on 5/12/2006 we had suggested hat “QQQQ would continue sliding down for a while along the short-term trend support line… and then rally”. Actually QQQQ did not just slide along the support line, but even broke it. It dropped further from 38.75 (Friday market close) to 38.23 low on Wednesday and then rallied making 39.58 high on Friday.
Long term perspective:
In a long-term picture we had suggested that QQQQ presents a long-term channel started in mid 2003. The Current short-term wave is moving down from a channel resistance toward a channel support level. As we see QQQQ now came very close to a support trend line and turned up.

QQQQ - Monthly Trend
Now an interesting part begins. The big question is if QQQQ will continue down move and break the support line or rally up till a resistance level again. Actually it is a very difficult question. We should be careful and use tight stops. Usually the best way to address this kind of question is to analyze the trend in a bigger time frame. In a bigger time frame this channel is a part of quarterly up wave that’d started on 10/10/2002.

QQQQ - quarterly Trend
The channel looks like a termination formation and shows bearish divergence on each new high. In addition weekly technical indicators are far from oversold area. That could suggest that weekly down wave may not be completed yet, and we may see more downside. But it is just a guess. We are not going to bet on it, so we are going to watch the price move very carefully.
Short term perspective:
The first resistance for the QQQQ rally could be the short-term trend broken support line. It is quite common when a broken support line becomes a new resistance line. Currently this line is approximately between 39.5 and 40. In addition 40 presents a 38.2% Fibonacci retracement for a 42.86-38.23 drop. If QQQQ will not be able to break this level, chances are that we will see dipper down move soon. Otherwise the short-term resistance line might be the next target.
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