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FLAGS AND PENNANTS

QQQQ Firms Near Key Retracement

11/26/07 10:52:53 AM
by Arthur Hill

After a sharp decline in early November, QQQQ firmed near a key retracement and formed a pennant consolidation.

Security:   QQQQ
Position:   Hold

QQQQ broke down in early November with a sharp four-day decline that broke support at 52. The mid-October lows marked this support level and the break was quite clean.

FIGURE 1: QQQQ. Q broke down in early November with a sharp four-day decline that broke support at 52.
Graphic provided by: MetaStock.
 
Despite a clear support break, the exchange traded fund (ETF) is finding support near broken resistance levels and a key retracement. The decline retraced 62% of the August–October advance; the 61% number stems from the Fibonacci number 0.618, which is the golden ratio. In addition to support from the Fibonacci retracement, there is also support around 49–51 from the prior resistance levels (red arrows). The resistance levels form a resistance zone, and this turns into a support zone.

Since the sharp decline, QQQQ consolidated over the last eight days with a pennant formation. The sharp decline created an oversold condition and this pattern represents a rest after the decline. Note that the relative strength index (RSI) moved below 30, which is oversold. The pennant alleviated this condition as the RSI moved back above 30.

FIGURE 2: QQQQ. Since the sharp decline, Q consolidated over the last eight days with a pennant formation.
Graphic provided by: MetaStock.
 
The resolution of the pennant will dictate the next trading signal. A move below last week's low (48.8) would signal a continuation lower, while a move above last week's high (51) would be bullish. Pennants are typically continuation patterns, and this favors a break to the downside. The key, as always, is to wait for confirmation.


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
Address: Willem Geetsstraat 17
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Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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