I don’t even know what I am having for dinner tonight. That is how short term my expectations are on this set up. I have already closed out purchases of the last 2 days – XHB, XLK, JNK and MYC. My trading positions have been small and I have been quick to take profits.
I Like Exchange Traded Funds
This removes company-specific events which may compromise an individual stock, even though the group may work. When really leaders with high growth show up again, then I will look at stocks again.
I see two very good potential trades. These aren’t recommendations! I’m just showing you what I am seeing. Most of you will look at all the lines, roll your eyes and go back to ESPN or CNN… I want my thoughts archived for future analysis of what worked and what didn't.
The NASDAQ 100 Index (QQQQ)
QQQQ has been trading in a narrow range between $28.5 and $30.5 for the last 9 trading days. Hourly volatility is now at extremely low readings, so a new trend may not be far away.
The trading range is capped by the Blue Line. See how this line has proven to be support (Blue Arrows) and resistance (Red Arrows) since the 10/10 low? It is a critical price level and traders have been keying off of it. Since mid-November, all rallies into it have been sold.
The trendline off the 11/21 low (Citibank bailout) has proven to be substantial support (Green Line and Arrows). It has held on all attempted selloffs.
Something has to give. Either resistance is taken out and the markets rally sharply, or support is taken out and we fall sharply. I think we are still in a Bear Market, so I am not invested in stocks and don’t care which way we go. I can make money in either direction. I just want a strong trend!
If resistance is taken out, then I want to own QQQQ. I will put in Stop Orders to Buy above $30.50.
The inverse of the NASDAQ 100 Index is PSQ. If the uptrend from the lows is broken on QQQQ, then I want to buy PSQ. I will have stop orders in above the PSQ Green Line.
One thing to watch out for is that if support is broken, then I would expect CNBC to float a rumor that the government is going to announce a bailout after the close on Friday. Gasparino will be the guy who does it, if it happens – “My sources are telling me (blah), (blah), blah)…”
Here is the hourly on QQQQ. QQQQ was extremely oversold on 11/21 (Pink Circle). It was 2.5 Standard Deviations from its hourly norm. This is a rare occurrence and a normal place at which to look for a reversal. QQQQ closed right on the norm today (Black Arrow).
QQQQ is actually pretty oversold on the hourly chart (Blue Box and Arrow) and could just sit around here for a few hours on Friday before breaking down. It could also just ramp and be at $32 before you can blink. We’ll see how it goes. In a week, I could be telling you that we are still stuck in the $29.5 range... I need to take what the markets give me.
Crude Oil (USO)
The other potential set up is a reversal in the price of Crude Oil. I use the ETF USO for investing in Crude Oil.
USO has traded from $119.17 to $32.10 in 5 months. The last 2 days have seen MASSIVE volume (Arrows). I always get interested when volume explodes, because it often occurs at the end of a move. So, I am looking for a potential reversal.
Here is the hourly chart on USO. The setup is there for a panic bottom. See how Momentum (bottom of chart) is putting in a higher low (Blue Line and Arrows), while price is putting in a lower low (Green Line).
On a panic bottom, big money stops selling on the first bottom (Green Arrow) and the little guy gets shaken out on the final panic bottom (potentially today’s bottom).
The setup I will be looking for is a reversal in price back above $33.25. That would give USO a chance to start a major short squeeze, where all the people who went short on the break of $33 are forced to cover, while others are buying USO.
See how the norm is at $44? There is not a lot of resistance until $40. I’d be happy with $35…
Friday and Monday could have some serious fireworks!