Friday, July 28, 2006
The QQQQ found resistance at its pivot point (middle of the downtrend channel) and turned sharply lower yesterday. This created a bearish engulfing signal, and as the name implies, it is bearish. Since the QQQQ has been the market leader on this downtrend, it will also be the best indicator of when this downtrend is ready to provide a significant relief rally. We have had a few teaser rallies over the last few weeks, but nothing that lasted more than a few days. We suspect that as the QQQQ reaches down to its lows, and perhaps even makes a new low, that sentiment levels will once again reach extreme. We also suspect that we are very near a strong relief rally and that buyers will be soon stepping in to the consternation of overly confident bears. This is still a market to be short in, but it is also a market for the nimble. Next week we may have an opportunity to participate in a strong upside move if we can get the right mix of decent earnings reports and too many bears with their hands in the honey jar.