We've covered a lot of ground today and have started pulling together a lot of different techniques and indicators that traders can use to their benefit to help set up trades and perhaps make more certain buy/sell decisions. Let's use the bullish percent data from today's 01:30 EST update to help guide those traders that are short/put the QQQ's. Here's a way that traders can actually use bullish percent data that is more "broad looking" to have some confidence that they need to be ready to lock in some gains short-term.
NASDAQ-100 Index Tracking Stock (QQQ) - 60-minute interval
If traders are using some of the underpinning signs of bullishness from our bullish percent chart they should realize that we are starting to see (from the bullish percent chart) some internal repair taking place. With that in the back of our minds, we can use the 60-minute chart and retracement levels to better understand just what bullish percent has told us about the past and what it might tell us about the future. You can see from the above chart that we have attached the upper portion of our retracement bracket to the top of the recent rally. When we look at the bullish percent chart for the NASDAQ-100 that is also the time when the bullish percent for the QQQ's was at 80%. Notice though (currently) how the above QQQ chart is now trading at a new 52-week low, but our bullish percent chart has NOT reached the lows on its chart. I'll explain why later. All traders really need to understand is that currently, the "internals" (as described by the bullish percent) are pointing to some strength and it may be time to be looking for a level to lock in gains on bearish trades. The above chart gives us a level near 38.2% retracement to do just that near $44.75.
Why does bullish percent show some strength when the QQQ's do not?
One of the main reasons I like the bullish percent to help assess risk/reward and potential strength/weakness is because each stock get "one vote" and that "vote" is equal weighted. However, the NASDAQ-100, which the QQQ's are derived is actually weighted with some stocks carrying more weight that others! It is for this reason that the bullish percent can actually give traders a "heads up" to the potential building of strength and weakness when a bar chart of an index says something different. While I always trade each security on it's own merits and technicals, I'm using the bullish percent to tell me what is happening to the "guts" of the sector/index. You see, much like a person who has come down with a virus, the virus starts out small and begins building. When humans first get the flu virus they actually feel fine, but as the virus builds they may get a fever, and eventually a headache and finally end up in bed. The opposite is true in the "recovery" phase. Think of the bullish percent as the internals that are equally weighted, and the index/sector performance as a reflection of that strength/weakness. If the $44.75 level is not achieved in the QQQ's and we continue to see strength in the bullish percent, I could lower my stop to 50% retracement or $49.37 and let the MARKET take me out of the trade, just in case the patient is starting to recover.