AheadoftheNews.com

The most potent analytical tool traders have at their disposal is confluence and correlation of two or more events at or near the same price. In the case of QQQQ (and NDX/NQ), the image is striking. When a very large gap such as the June 25 gap is closed (46.70/47.57), it often pays to keep it on your charts just in case it is revisited. This is precisely what happened last week. After the option expiration week short squeeze, we settled back down into that old gap and were unable to close the week above (Friday's close is at 47.49). Where the numbers start lining up is at the 10 day moving average (blue line). Notice the rejection the past few trading days and the fact that it now sits right at 47.57, the June 25 gap ex-gap close and the kind of confluence we look for. The third correlation is even more dangerous: 50% of the July high/low projection. To sum it up, QQQQ 47.57 is the old June gap close, the 10 dma and 50%. Quite a lineup that could make 47.57 one of the most important price points of the year. The task for bulls is pretty straightforward: close back up above 47.57 and hold it. Bears will want to defend it at all costs.

We are entering the week prior to a major holiday when we often see run-ups into the weekend. However, this is not the kind of environment where one can rely on such easy setups. What we did last year has so far been reversed almost to the day on a calendar basis.

For futures traders, NQ 1933 represents the approximate equivalent of QQQQ 47.57. Friday's close was 1929.50.

This entry was posted on Sunday, August 24, 2008 at 8/24/2008 11:47:00 AM. You can skip to the end and leave a response.