Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Saturday, January 16, 2016

Is the QQQ Telling Us a Big Bounce Is Imminent?

The fact that we have now entered a bear market is old news, the game now is to figure out when they are going to force the first big short squeeze that morphs into a multiday bounce.  It's likely to take off like a bottle rocket when it happens and it's key to catch the very beginning, especially playing options.  There has been a lot written the past few days about the breadth indicators such as percent of stocks above their 50 day MAs and percent of stocks above their 200 day MAs and the McClellan oscillator having reached extremely low numbers deep into the buy zone and many approaching all time low readings which increases the possibility for a short squeeze as fresh shorts continue to pile on to the stock market in droves.  One less discussed chart lately has been the QQQ (Nasdaq 100 ETF) that essentially drives the Nasdaq Index.  Taking a look at its chart below we see that it also closed Friday at a very important support level, arguably even more critical than the S&P 500 support level I focused on in my previous article.  

Click on image to enlarge

Having both indices at such critical support levels makes it a potentially volatile pivot.  If the powers that be can start it moving upward quickly on Monday or do their Sunday night futures ramp, then keep the momentum, we could have a classic rip your face off short squeeze.  If the level is lost on Monday, a thousand point one day drop in the Dow is also conceivable.

Knowing how much is at stake here it seems as though they almost have to bounce it here because if they don't then the damage that will be done to the S&P and Nasdaq charts could trigger selling that makes last week's sell off look like a cake walk.  I can't imagine that they would wait and try to rescue the market after a major second blow when they have the opportunity to step in at this point.  The technical necessity of a bounce here makes me believe that it may actually happen.  If they are relentless on the squeeze we could have a week of up travel out of it.  However, in the longterm I believe the market is going much lower as the reality sinks in to investors that the constant week to week and month to month bid under the market the past few years is no longer there.  

Trade well my friends


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