Securities Research Services

Wednesday, August 02, 2006

Bear Trap Being Set, or the Real Thing?

The QQQQ gapped down and led lower yesterday after a low volume rally up near resistance. The question is, is this a bear trap in the making? QQQQ shorts are buying 4 times as many puts as bulls are buying calls. With bears leaning one way so hard it seems unlikely that yesterday's sell off will gain much follow through momentum. Likewise, yesterday's gap lower is probably more bullish than bearish at this stage. Bears are getting overly exuberant while weekly charts are very oversold and due for some relief. It wouldn't take much to spark a strong relief rally and with the Fed possibly acting next week, this may be the spark that bulls are waiting for to challenge this latest sell off. It might be a better idea to start thinking about buying weakness as opposed to selling it.

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