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"Bear Confirmed" in the NASDAQ-100

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It's been PremierMarkets.com stance since late April to be fairly cautious about being overly bullish the QQQs or many stocks in the NASDAQ-100 (NDX.X) since its bullish percent chart reached a level above 70% bullish. After Friday's trading session, we have now seen this indicator fall to 60% and places this index in "bear confirmed" status. We have pointed out though that this indicator did reverse higher in early May (red 5) and this is very different than what we had seen in recent past when the indicator reversed into O's and just fell like a rock. This recent activity gives hint that some repair has been done to stocks in this index, now we wait for a reversal back into X's.

Bullish % for NASDAQ-100 ($BPNDX) - 2% scale

Ideally, this indicator would fall to the 24% level and then begin to reverse itself back into a column of X's. I'm not sure that is going to happen on this pullback. PremierMarkets.com has been avoiding this part of the market from the bullish side and instead profiled a hedge strategy in the QQQs to actually buy partial positions here to help hedge a profiled portfolio that was getting a "little long." Most of our profiled longs are some of those "old economy" stocks that we felt would be the safest and perhaps the most profitable types of trades to be looking for in the current market environment. Now that the QQQs have shown some strength in their bullish percent that they hadn't shown for about 9 months, we can begin to do some longer-term buying on the next pullback. My thinking has been this. If the deep cyclicals and some of the "old economy" stocks don't perform to the upside in MARKET anticipation of stronger earnings, then many of the stocks in the NASDAQ-100 will either fall from current levels or just sit there. It's my belief that the deep cyclicals have the big technology budgets. If there stock doesn't do well and their bottom lines grow, then there will be little money trading hands with technology companies and their products or services.

NASDAQ-100 Index Tracking Stock (QQQ) - 60-minute interval

If a trader were to "fit" a retracement bracket with its 61.8% retracement level just under Friday's action, couldn't that also be somewhat correlative with the bullish percent chart at 60% bullish? Notice how current trading in the QQQ is at $44.35, but a previous relative low at $43.43 is yet to be tested. HOWEVER, the bullish percent has violated a relative low on its chart. I've said before that the bullish percent is only and indicator of risk and not a predictor of direction for a sector or index. I think with bullish percent currently at 60% and lower than the last pullback on its chart of 66% compared to what we're seeing in the QQQ as it relates to its price is a sign of strength for the QQQ. This has me thinking that a pullback near $42-$40 in the QQQ might occur just when the bullish percent indicator reaches 30% (if it reaches 30%). Now all I have to do if I'm a bullish trader is watch the bullish percent and the QQQs and let the trade set itself up.

Jeff Bailey
Senior Market Technician

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