This article comprises several days worth of analysis of the NASDAQ 100 Index tracking stock (symbol: QQQQ), focused primarily on 60min charts, which sit in that sweet spot between day trading and longer term trading. We also use candlestick patterns, and there are abbreviated references to the major candlestick patterns throughout. An explanation of these is given at the end of the article.
Most of the commentary relates to the 60min timeframe. In reality, we favour (screen "real estate" permitting) tracking 15min, 60min and Daily (24h) charts for optimal awareness. Both the shorter and longer timeframes inform the core plot in different ways:
- Daily is useful for studying both specific patterns, as well as the overall trend within this timeframe, bearing in mind the majority of actively managed institutional money - i.e.
mutual funds, hedge funds, very active pension funds - use the daily charts as a default timeframe for moving averages and key SR areas.
- The 15min chart is essential for fine-tuning entries, based on strong higher timeframe signals, as well as finding short term action points based principally on breakouts from minor SR. To a large extent the market will dictate the bias towards one timeframe or another. In a generous, wide ranging or trending market, the 60min/24hr pair come into their own, whilst a choppier environment requires more 15min/60min concurrent analysis.
As you read through this article, you should see a pattern emerging of what we look for & how we manage positions. We are looking for identifiable & recurring patterns & conservative action points.
Please note: For each time period discussed, the numbers within the commentary, shown as ( x ), relate to a corresponding point marked on the chart supplied.
Tues, 8th Feb 2005 - 15:00 GMT (QQQQ = 37.84)
Yesterday's strong recovery candle (8) – a bullish counter-attack for those of a candlestick orientation – was an important one; it held the retreat on QQQQ just above the still-rising 50MA, as well as cancelling out the prior down candle, which had breached the 20MA (a key level which needs to hold to keep the us in a Long Intermediate Term (IT) trade.
Despite this positive candle, we have dipped back through the 2nd Feb SR (5), although well supported by the key Bullish Engulfing Pattern (+BE) (6) as well as the pivot 4th Feb breakout intraday. As this is written, the first candle prints a pretty bullish pattern as the recent pullback is potentially taken out hastily. Watch for that action at the 37.91 level, as a breakout here on this pattern would reverberate around the trading floors: the Nasdaq is leaving its sick bed!
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Fri, 11th Feb 2005 - 15:47 GMT (QQQQ = 37.29)
New +BE on 60 min chart (12). SR at (11) obviously key. This thrust through 20MA came from nowhere and may unnerve those participants who are either short or flat the Nasdaq.
Mon, 14th Feb 2005 - 18:53 GMT (QQQQ = 37.86)
High Wave Candle (HWC) (13) at prior SR marked by the two Bearish Engulfing Pattern (–BE) has been followed by a series of upper shadows. Short term positions should close at 37.65, which would be confirming the short term rounding top we can see on the hourly char / IT / L position initiated from the Bullish Engulfing Pattern (+BE) (12) still looks comfortable here, despite the immediate SR barrier.
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Tue, 15th Feb 2005 - 15:18 GMT (QQQQ = 38.05)
A clean breakout (14) on brisk volume to attack the window zone on the daily chart. IT/L still feels right, despite the Falling Window Resistance (–FWR) and –BE (daily) barrier immediately ahead.
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Tue, 15th Feb 2005 - 18:35 GMT (QQQQ = 38.00)
Initial test of rising Trendline (TL) (15) held on Mid-East jitters. We’ll be keeping close tabs on both (15) and the key zone around at the foot of the prior basing area around 37.69 (16) with regard to the IT (intermediate term) position on QQQQ.
Wed, 16th Feb 2005 - 15:24 GMT (QQQQ = 38.07)
Fourth test of the lower boundary at 37.87 (17) is followed by a strong up move as Greenspan assuages some market concerns. Intermediate trade still long although only hanging by a few threads. Notably, we have broken the 20MA for the first time since the +BE (12) which sparked the up move. Likewise the new –FWR (16) which just repelled this hour’s move (18) is new to the intermediate picture.
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Wed, 16th Feb 2005 - 15:45 GMT (QQQQ = 38.01)
Very tall shadows (18) precisely at the top of the window are a new element in this precariously balanced intermediate long position. The situation in some ways is clearer now: the 37.87 level – tested 4 times so far - is absolutely key. Today we broke the 20MA on light volume which is another ‘caution’ flag.
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Wed, 16th Feb 2005 - 18:35 GMT (QQQQ = 37.89)
Our Q/IT position is looking bruised after Greenspan’s speech today, but herein lies the beauty of hour by hour analysis of the action in this benchmark ETF. We have indeed partially ‘broken down’, as numerous flags have suggested we would. Let’s count them for good measure; first off, the Shooting Star (–SS) swiftly followed by the sharp move down (15) which negated the breakout move to 38.50; so far, so good. No strong break through key 20MA, nor through the rising trendline. Follows a weak move to just above +TWC mid point on weak volume, then today’s gap open down (16) followed by several tests of the lower boundary (17). More upper shadows within the window, with no penetration at all of the 20MA. The latest factor is a 2nd consecutive candle (19) below rising TL (15) and a potential close below the top layer of SR (marked by the lower shadow of today’s 2nd candle). Stepping back, despite this poor action, Q is still above the base formed during Friday & Monday’s flatlining market.
Thu, 17th Feb 2005 - 15:25 GMT (QQQQ = 37.75)
Rating change: Q/IT/N (long to neutral). Major move through key SR and 50MA on hourly chart (21) following the pre-market failure to move in to Falling Window Support (–FWS) zone.
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Thu, 17th Feb 2005 - 19:32 GMT (QQQQ = 37.64)
On the four-day view, there are multiple new developments, of which the high volume breakdown candle (21) through 20/50MA which triggered the IT move from L to N is the most important. First close below the 50% retrace line (22) and a new low underneath the SR at (16). This also coincides with a 20/50MA crossover which confirms the parlous state of Q at this time. We are now looking for both Short Term (ST) on the 30min and IT on the 60min for first potential clues for a snapback: it seems all a little swift to the downside, precipitated largely by Fed testimony and heightened GP risk (geopolitical risk).
Wed, 23rd Feb 2005 -13:19 GMT (QQQQ = 36.89)
Friday opened with a –BE at 23, a weak rally to the steeply falling 10MA (green) & then a heavy volume plunge through 200MA (24). There was no sign of a rally after this initial bout of weakness, confirming the severity of this decline, as Q stayed below the 10MA all session. Tuesday’s gap down (25) was followed by a heavy volume candle which hints at latent buying power as we approach a logical area for an oversold rally. When this rally failed almost immediately just under 20MA at 26, and negated the prior rise within two hours, Q rolled over to the key SR area under 37, forming a new SR2 tweezer at 36.80, closing a fraction above the prior low of 10 Feb. We remain on the sidelines intermediate term (swing trade timeframe), awaiting clearer signals and stability, while in the shorter term timeframe we would be surprised to not see an attempt to rally after this sharp decline.
Wed, 23rd Feb 2005 -15:38 GMT (QQQQ = 36.86)
RSI 14 still holds a rising trend (31) after attempting (30) to break above the downtrend line initiated at the spike (80 RSI 14).
Thu, 24th Feb 2005 - 16:24 GMT (QQQQ = 36.97)
Rising trendline (32). Neutral HWC 30. Thrust through 10/20MA with potential for 10/20MA crossover / ST N to L.
Thu, 24th Feb 2005 - 20:00 GMT (QQQQ = 37.27)
Textbook +BE shaping up on the daily chart, but hourly chart triggered the ST L nearly 4 hours ago. Moderate volume thrust through 10/20MA with 10/20MA crossover off of a new rising TL3 (trendline with three touches), followed by heavy volume confirming pivot breakout through 50MA. Next barrier is failure breakout move (26) from 22 Feb. The supporting cast (+BE D chart) adds evidence that this is more than a very transitory one day bounce, but nothing is clear in this Q market for now: take each bar one at a time to dictate short term tactics. New 8pm candle starts off on the right foot (i.e. up) (37).
Fri, 25th Feb 2005 - 16:19 GMT (QQQQ = 37.44)
Bounce off mid point of nearest tall up candle (39) and the shallow 25% retracement line (38). Fresh attempt to scale and hold the 37.50 level fails for now. Friday breakouts are not as frequent, as position squaring in front of the weekend often prevails. New +BE (40).
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Mon, 28th Feb 2005 - 15:15 GMT (QQQQ = 37.42)
Scaling out of 50% of ST (short term trade) following the new –BE (42) and a break through 10/20MA. The 50% remaining is there for the ‘bounce’ scenario from well-defined near term SR starting at 37.30.
Mon, 28th Feb 2005 - 17:04 GMT (QQQQ = 37.24)
ST/N. S1 hit at 37.28 on 2nd 50%.
Mon, 28th Feb 2005 - 17:20 GMT (QQQQ = 37.16)
The -BE (42) was a standout print after the move up since the 23-24 th base. Sharp fall through 10MA is ususally not a good sign (43), and wasn’t this time around. 2nd steep negative candle of the day following a pause at the (very high) high wave candle broke the rising 20MA and prior SR (37). S1 at 37.28 (red line 45) closed us out which is just as well as we fall sharply through successive retracement levels & MA levels. Volume still not a feature today, and with the +BE daily still registered we could be seeking out a sharp bounce once this gale subsides.
Tue, 1st Mar 2005 - 18:19 GMT (QQQQ = 37.44)
The lower shadow of +BE (46) printed precisely at the intersection point of the 10/20MA cross which gave us that ‘close to perfection’ upmove off the Feb 23-24 th mini-base. Due to the steepness of the fall from (42) to (46), our usual MA ‘reference points’ were still playing catch-up as Q rallied off the 36.92 level: a classic v shaped rally which day traders love, but not quite as useful for ‘swingers’. Lower shadows kissing the red rising trendline all the way up on this rally, unlike the 24 Feb move: this one’s for suckers, or something more durable? Supporting the latter view are the shape of the 20/50 MA, where 20 held above 50 which is now just turning up (47).
Wed, 2nd Mar 2005 - 22:50 GMT (QQQQ = 37.61)
Today’s move above the near term pivot (48) was pretty impressive when viewed on the 60 min chart, although the D chart shows the big, ugly down –BE (negative bearish engulfing) candle from 17 Feb which sparked the fall to the 36.70 level (29). As observed yesterday, the 50MA is now well into a decent uptrend, under the rising 10/20MA pair, but the fact is we failed at the 38 level today, and immediately overhead from that level lies the barrier at 38.20; for now, the technicals are mixed, but today’s two candle thrust shows the latent bullishness building up in this market given a ‘less resistant path’, ie no oil spike, Gulf event or sudden inflation tremor. Our intermediate term tactical call is for continued chop and a struggle to break out, which gives us pause for thought as the top of the current range approaches; however, some key constituents of the Nasdaq are acting well (SMH) while others may be bottoming (HHH).
Fri, 4th Mar 2005 - 18:55 GMT (QQQQ = 37.61)
Thursday’s –BE (50) 1 st candle fell through a 10MA which had started to fall on the back of the prior session’s weakness: any ST longs at this juncture would be highly suspect, and indeed on the intermediate term picture a long position was also looking tenuous at best. A repeat of Monday’s sharp plunge followed on heavy volume, revealing how thin the ice is currently for the bullish case for the Nasdaq. Today’s opening spike once again put the bears onto the back foot, or at least off the front foot, but today’s heaviest volume (53) was reserved for the spike and failure (52) at 37.74, just above the top of the real body of yesterday’s –BE on the D chart (51). There are other short term pointers out there as the market tries to answer some pretty fundamental questions such as can it live with $50+ oil, even as the jobs picture improves: the 50MA, which twists & turns in subtle ways, is now flat once more: if you think this spells drift, the daily chart is no better, but as long as Q holds above 50MA as well as the bulk of today’s big spike (note the 3 lower shadows brushing the 50MA), there is a case for a move towards new highs: tonight’s close will be pretty revealing, and this potential pivot (55) out of today’s range may start to answer some of our questions.
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Wed, 9th Mar 2005 - 12:40 GMT (QQQQ = 37.68)
Monday’s 70c move peaked at the series of upper shadows under 38.30, just under the area where the market failed in mid-February. Clearly Monday's sharp move in the opening 4 candles was impressive, and something we have not seen for many sessions, but indecision soon re-asserted itself and a shooting star followed by -BE (57), which fell through a declining 10MA, has now pushed this embryonic rally back down to the 50 MA . ST-N, IT-N.
Wed, 9th Mar 2005 - 16:12 GMT (QQQQ = 37.81)
First high volume candle today bounces sharply from same level as Monday’s early up candle & holds above the 50MA / upper shadows (circled) at the top of near term SR (59) reveal clearly the next hurdle beyond this promising early move.
Tue, 15th Mar 2005 - 09:57 GMT (QQQQ = 37.34)
Support held at the March 3 rd low, followed by a DNA driven move which takes us back above an improving 10MA. Volume on this key candle was light at 13m (20m + is a heavy volume candle), and aside from biotech, market movers were thin on the ground. The 15min plot (15 min chart 15 Mar 2005) shows clearly the SR level at 37.37 and a near term overbought condition: notice the Hammer * (* denotes variation) & SO (stochastic oscillator) cross as the 1 st tall up candle on rising volume crosses 20MA. QQQQ is oversold but not at extreme hammer levels, and may have another shoe to drop in its current weakened state within a 36.50-38.50 range, but the key for now is the close-in action (15/30/60min) for signs of whether there is anything behind yesterday's late push off recent lows.
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This five week period provided several good setups on just the 60 min chart alone. By replicating this analysis across three timeframes you can increase awareness and confidence at action points. I believe this continuous multi-frame QQQQ analysis is pretty essential for anyone venturing into any style of Nasdaq trading beyond very short term intra-day scalp trading. Certainly if you are swing trading or position trading it is a great idea to 'get under the skin' of the Nasdaq. After all, despite the prominence of 'stuff' sections (i.e. stuff on the ground, or stuff you make mainly for Chinese consumption) in recent months, for 20+ years now the Nasdaq has lead the way in volume, leadership and creation of America's great companies. So, sooner or later, it will return centre stage. We're not just talking dotcom or spiffy software, but all the industries that drive the 21st century: medical, biotech, alternative energy, e-commerce, security - to name a few areas with vast upside.
So, when the tap is turned on again, whether in the short or longer term, the stocks of the hundreds of triple digit growth, ultra high margin, superbly managed, entrprenurial companies - most of which can be found at the intersection point of Nasdaq and US - will invariably attract major money flow. We can use this relentless trend to our short term advantage.
Using patterns, moving averages, oscillators & volume you can put yourself in a strong position as you widen your net to individual equities. Without this framework you are flying, if not blind, then certainly with impaired vision. During weak market phases such as we have endured for many weeks, dozens, cascading into literally hundreds of strong stocks, will pull back, many substantially so - as they have performed so well in the last up phase. Once the fluff or excess valuation has been taken out in the first part of a market correction, most of these names start exhibiting positive relative strength versus their sectors and indices. This can be observed visually and tracked quantitatively. Screens that compute RS on a continuous basis will reveal these leaders that in all likelihood (barring a short term change in market perception about fundamental momentum) will bolt out of the gate as the selling pressure subsides. Using the same analytical method as used on QQQQ, looking for patterns, divergence &volume clues, these names will flash signals very early in the recovery process. Some of course will be false ones, hence the paramountcy of QQQQ as the major guide. But once you’re in synch with QQQQ across three timeframes, once the market starts to hint at recovery, the next set of problems resolve around choice, selectivity & position management as the fruits of careful analysis abound and dozens of high RS stocks print high reward:low risk setups in quick succession.
Abbreviations
- HWC: High wave candle (- or + bias depending on where it appears)
- SR: Support resistance or congestion area
- -BE: Bearish engulfing pattern
- +BE: Bullish engulfing pattern
- ST: Short term trading position orientated to 15min/60min charts with tight stop
- IT: Intermediate trading position orientated to 60min/24h charts with layered stop
- -FWR: Falling window resistance
- +RWS: Rising window support
- TL: Trendline (- or + depending on angle) (eg +TL3: rising TL with three touch points)
- MA: Moving average (10/20/50/200 SMA used on 24h chart)
- -US: Upper shadows (+LS lower shadows)
- -SS: Shooting star after a recent uptrend
- FR: Standard fibonacci retracement levels (eg held at FR50%)
- STO: Stochastic oscillator