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Actionable news in QQQ: PowerShares QQQ Trust, Series 1,

Continuing A Topping Pattern?

Market Overview

In the last newsletter, I mentioned that the pattern that the SPX was making looked more like a consolidation than anything else, and that it would have to decline at least below 2043 to alter it. The index made a couple of half-hearted attempts at breaking that support level, but buyers immediately stepped in and caused it to rally. By Thursday, we were on our way to a new high, but the advance stalled on Friday at 2088.

The re-accumulation pattern which formed above the 2043 level called for conservative count to 2088-2094. There is also a weak, liberal count that could take the index as high as 2123. Positive news coming from Doha on Sunday could be the catalyst which drives prices to that level.

It is clear that, as of Friday, the SPX had not conclusively made a rally high, although it did reach the lowest projection level of 2088 and started to back-off. For a confirmed reversal, we would need to see it decline not only below 2043, but 2020 as well. Since nothing has changed (as we will see later) in the relative positions of the leading indexes to the SPX, we can only assume that the rally which started at 1810 is still looking for a price level at which to end, and that last week’s rally extension is not the start of a new uptrend.

SPX Chart Analysis

Daily chart (This chart, and others below, are courtesy of QCharts.com.)

At the moment, we cannot derive any firm conclusion from last week’s action, but by next week, the index should be in a position to tell us more about its intentions. Until it reached 2075, it traded in a blue channel, came out of it last week and back-tested it as it made a new high. It also appears that it is now moving in a larger, less steep, black channel, thereby continuing to mimic the pattern that it made when it rallied from the September 2014 low, except that back then, the move out of the first channel was much weaker. Currently, it is also diverging from the former pattern by making a new high after coming out of the blue channel.

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