Securities Research Services

Sunday, February 11, 2007

Trading Range, Trading Range, Trading Range...

On Friday stocks bounced off overhead resistance in the trading range. This can be seen clearly by looking at the QQQQ (NASDAQ 100) chart. For three months the QQQQ has bounced between $43.50-$44.70. On Friday the QQQQ briefly tagged $44.72 and then turned south, as should have been expected by anyone who recognizes that this market is range bound.

Note, however, that the QQQQ is approaching its uptrend support, representing the trend which began back in July. Options expire on Friday and it is very likely that the QQQQ will remain range bound until then, allowing options sellers to cash in with full profits as their contracts expire at or near $44.00 maximum pain. Friday is also the day that the QQQQ price should run into the uptrend.

This week, then, is likely to remain fairly uneventful and moves within the trading range should be interpreted only as market noise and nothing more. When the QQQQ runs into the trend, we will then know whether this market is going higher or creating a top. Probabilities favor a move higher, but don't discount the fact that the uptrend might fail to. In other words, plan for the best, but be prepared for the worst so as not to be disappointed if the market doesn't fit nicely into your expectations.

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