Weakness Coming, Then Strength

Traders start off the week with few advantages. The market is quite likely to see weakness early this week. Nevertheless, the intermediate bias of the market should now be up due to the fact that the Fed is likely to lower rates yet again.

If you are a daytrader you should probably be putting on short positions over the next few days. If your timeframe is anything longer, then it's probably best to stand aside and wait for the long side to set up again before acting.

Here's why:

Using the QQQQ as our basis, note that the price is near term overbought and that the open gap below is quite vulnerable.



Swing traders might aggressively short today and hold for the gap fill, but the probabilities on the trade are less than strong. Trading rules 101 dictate that you don't trade against the trend. Below we will show how it is quite clear that shorting the market here is trading against the stronger, longer term trend.

Take a look at the QID, the ETF that trades inversely to the QQQQ (when the QQQQ goes down, the QID goes up).



It is clear that the QID is in a long term downtrend, which by default means that the QQQQ is in a long term uptrend.

So, once again, if you wish to be ultra aggressive here, open some shorts here. We believe, however, that any short positions are vulnerable to wide intraday price swings and that the smart money will be waiting to buy the next dip for a rally that is likely to last into the end of the year.