QQQQ Hits Gap Resistance

10/16/08 10:04:51 AM

by Arthur Hill

With a failure at gap resistance and bearish momentum, QQQQ remains in a downtrend on the daily chart, and follow-through is needed to complete a reversal.

Security: QQQQ
Position: Hold

Figure 1 shows QQQQ with a huge decline over the last two months. The exchange traded fund (ETF) clearly became oversold in mid-October and surged with a big advance on October 13. With some carryover the next day, the ETF gapped up and opened in the gap zone. This zone proved to be resistance as QQQQ moved lower the rest of the day and closed with a long black candlestick. Resistance was affirmed and a break above 36.5 is needed to provide follow-through to the big advance.

FIGURE 1: QQQQ, DAILY. Note the huge decline over the last two months. The ETF became oversold in mid-October and surged with a big advance on October 13.

Graphic provided by: TeleChart2007.

The indicator window shows some troubling volume patterns. QQQQ declined on high volume for six days (red bars) and then surged on lower volume (black bar). The October 13th surge occurred on the lowest volume over the last eight days. In addition, volume expanded on the October 14th decline, and this is not bullish at all. Volume on up days should exceed volume on down days.

FIGURE 2: QQQQ, DAILY. QQQQ is shown here with 15-day RSI. This momentum oscillator became oversold in early September and QQQQ continued lower into mid-October.

Graphic provided by: TeleChart2007.

Figure 2 shows QQQQ with 15-day relative strength index (RSI). This momentum oscillator became oversold in early September and QQQQ continued lower into mid-October. The oversold just became even more oversold. This is what happens in a strong downtrend. The RSI broke above the red trendline with Monday's surge but remains below 50, the midpoint for the oscillator. Look for follow-through above 50 to turn momentum bullish. Note that RSI broke its red trendline in early July but did not break above 50 until the end of the month. It may take a while for a momentum breakout.

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.

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QQQQ Hits Gap Resistance

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