Potential Price Targets on QQQQ/QLD

Click on Chart to Enlarge

The chart above is QQQQ which is the Nasdaq 100 ETF. Now that it is obvious that the recent downtrend is undergoing a correction I wanted to show what I am looking at as far as price targets and potential resistance for this market rally.

I have drawn a few horizontal red lines and one horizontal green line on the chart. I could have drawn several others of the same type, but these are just going to be examples. The red lines mark the prior day's close when there is a significant gap down at the open. The green line is the same thing except that the market gaps up the next day instead of down. I have mentioned several times in past posts that I meticulously track these gaps because they have such a strong tendency for price to come back and fill the gap, and they also often act as support or resistance. This is all the more true for QQQQ as it seems to fill gaps even more often than SPY, etc.

If there is a visible space between the adjacent price bars, that is called a "window" in candlestick terminology. The idea is that when a window is created, the analyst should look for it to be "closed" by price returning to the range of the prior price bar/candlestick at some point in the future. Additionally, once the window is closed, prices often will resume the larger trend shortly thereafter. By looking at the highlighted examples on the chart, you can see this has been the case in QQQQ for several months.

There reason I am bringing this topic up is that there is a large open window at 30.50ish on QQQQ that was created by the large gap down on Feb 17th. That would be the upper limit I would look at for the first leg up of this market rally. I would strongly consider making a bearish ETF trade at that point if the indicators look good/overbought. That price level corresponds to 27.50ish on QLD which is the fund for the current blog trade.

The minimum price level I would expect to be attained probably by next week would be 29.18 on QQQQ and 25.35 on QLD. Those prices correspond to the next swing high above current current price levels. Also, those prices would correspond with the 80.00 level on SPY.

So I am not suggesting any changes currently for the blog trade, but am laying out a kind of "if-then" scenario for the next potential trade. If prices move up to the open window area and the short-term model is overbought, then I would have confidence to enter a bearish trade. Over the weekend I will make a post relating to the probable/possible patterns that could develop on this rally and relate that to some past posts I have made on the topic. While I do not base trades on this blog purely off of any price pattern, patterns largely factor into my "filtering" process for trade recommendations on the blog as far as which signals to act on.