A Descending Triangle For QQQQ

10/24/08 10:11:53 AM

by Arthur Hill

QQQQ formed a descending triangle over the last few days, and a support break would signal a continuation of the bigger downtrend.

Security: QQQQ
Position: Sell

Figure 1 shows the NASDAQ 100 ETF (QQQQ) with a descending triangle on the 60-minute charts. This time frame expands on the last 10 trading days to show the pattern quite well. There are three relatively equal lows around 29.5 and a lower high around 33.5. This lower high shows selling pressure appearing well below the prior high. Sellers came in earlier than the prior high at 36, and this is bearish. The relatively equal lows show the last bastion of demand (support).

FIGURE 1: QQQQ, HOURLY. Note the descending triangle.

Graphic provided by: MetaStock.

A break below support would confirm the pattern and project further weakness. QQQQ was on the verge of breaking support on Thursday, but bounced back with a late afternoon recovery. Another breach would project further weakness toward 23–25. The height of the pattern is subtracted from the support break for the downside projection (36 - 29.5 = 6.5, 29.5 - 6.5 = 23).

FIGURE 2: QQQQ, DAILY. Note the daily candlesticks with the descending triangle and a falling price channel.

Graphic provided by: MetaStock.

Figure 2 shows daily candlesticks with the descending triangle and a falling price channel. The red line shows the descending triangle target around 23. For the channel, I drew the upper trendline first and then the lower trendline was drawn parallel. It extends to around 25–26 early next week, and this area could also act as support. Considering the channel extension and descending triangle target, I would mark the next support zone around 23–25.

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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DESCENDING TRIANGLES

A Descending Triangle For QQQQ

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