Tuesday, March 31, 2009

Wednesday Trade Prep and Bullish Set-Up

Click on Chart to Enlarge

The chart above is a 15 minute chart of QQQQ for the last 8 days or so. It is showing an island top pattern on this time frame and also a head and shoulders type top. If the market falls from here, the standard target for this would be around 28.00 on QQQQ which also happens to be near the 61.8% retracement of the rally off the March low. There are also unfilled gaps underneath current prices that are likely to draw price down to fill the gaps.

I made a put option trade on SPY at about 1:30 ET Tuesday. The short-term model was nearing overbought, but never quite made it, so I could not justify recommending a blog trade on this. The futures are off to a solidly negative start in the overnight session, and I would not suggest trying to buy into a large gap down tomorrow. Also, if there is a large gap down, that will skew the risk to reward ratio for trying to enter a bearish trade tomorrow. For blog trading purposes, I will wait for a more clear signal after a more extreme price movement.

From the looks of the price pattern I would think that SPY will move down toward the 74.00 level into next week which, if accompanied by short-term oversold signals, may offer a solid bullish trade entry for the blog. But, that may be the last solid bullish set-up before things really fall apart. And even if this scenario plays out, I am still not certain that I will recommend a bullish trade due to the negative larger trend. We'll see how things look when the time comes.


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