Just a quick note on the QQQQ (Nasdaq 100 etf) as the market has indeed rallied into key resistance/target at the ceiling of the falling wedge that has been forming since late Jan.  As been warning, these are generally seen as bottoming patterns that resolve sharply higher.  Note however, that they break down into 5 legs, raising potential for a final test of the base (currently at just below the Monday low at $41.05, see “ideal” scenario in red on daily chart below).  Note too that the market is also testing key resistance in the smh (semiconductor index, and a favorite leading indicator for me), and adds weight to the view that this resistance area in the qqqq will hold at least temporarily (see 2nd chart below).  Also, as mentioned numerous times in the past about these wedge patterns, that good profits can often be made by trading the extremes, and that strategy has been working to perfection.  Bought on the Monday approach of the mid March low at $41.17/approach of the base (reached $41.05 before reversing sharply higher).  For now, would take those quick profits here (currently at $43.40) and if shorter term/more aggressive, would even reverse for the base just below the recent $41.05 low.  Initially stop (and reverse on a clear break above the ceiling) but lower stops with the market as this final downleg may never reach the base.   Nearby support is seen at $42.30/35.

Also, I will repeat the longer term comments from Monday’s email here….

Longer term, the bearish view since late last year remains in place (warned of a top for at least 12-18 months).  However, an upside resolution of the wedge (see above) would complete the 5 wave fall from the Oct high at $55.07, and suggest at least another 2-3 months of wide consolidating higher before resuming the longer term downtrend.  Note too that the base of the wedge (above) is also the key longer term support at a 38% retracement from the Oct 2002 low at $19.59 as well as the 200 day moving average (see weekly chart below).  On a downside resolution of the wedge, this adds weight to the view of a further acceleration lower (likely stops below), and targets eventual declines toward $37.40.50 (again points to the importance of this support area).   

David Solin
Partner, Foreign Exchange Analytics