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BREAKOUTS


Deja Vu For QQQ

10/14/04 09:58:54 AM
by Arthur Hill

The pattern that's shaping up on the 60-minute QQQ chart looks just like the one in late September. The September breakout led to a new reaction high, but the current breakout is already encountering selling pressure.

Security:   QQQ
Position:   N/A

The pattern that's shaping up on the 60-minute QQQ chart looks just like the one in late September. The September breakout led to a new reaction high, but the current breakout is already encountering selling pressure. Both patterns feature classic retracements and typical corrections that began with consolidation support breaks (gray ovals). See Figure 1.


Figure 1: QQQ, 60-minute. Both patterns feature classic retracements and typical corrections that began with consolidation support breaks (gray ovals).
Graphic by MetaStock.



After a run from 33.66 to 35.85, QQQ retraced 62% with a falling wedge decline back to 34.23. Note that the stock gapped down just before the bullish reversal and breakout (gray arrow). The trendline breakout filled this down gap (exhaustion gap) and foreshadowed a move above 36.

In October, QQQ retraced 62% of the prior advance with a falling wedge back to 35.20. The stock also gapped down on the way to this low (gray arrow) and then reversed with a sharp advance. The breakout filled the gap to make for another exhaustion gap and broke trendline resistance with a move above 36.

These patterns are clearly similar and the latest upside breakout should be considered bullish. But how bullish? After the first breakout (green arrow), the stock managed to consolidate with a sideways move and did not encounter much selling pressure (gray oval). The second breakout (blue arrow) featured a gap on October 13, but this gap was soon filled with a sharp decline back to around 35.5. See Figure 2.


Figure 2: QQQ, Consolidation and Pullback
Graphic provided by: MetaStock.
 
The sharp pullback shows increased selling pressure and questions bullish resolve, but support is close at hand. Broken resistance levels often turn into support, and the current pullback returned to the trendline extension (gray arrow). The stock needs to hold around 35.5 and resume its breakout for the bulls to remain in charge. Should QQQ fail and move below 35.20, the bears would regain the upper hand and a test of the September lows would be expected.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
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E-mail address: arthurh@tdtrader.com

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