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NASDAQ-100 Trust (QQQ) breaks 50-day

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Weakness in technology shares has the NASDAQ-100 Trust (AMEX:QQQ) breaking back below its 50-day moving average after a recent failed rally attempt at its still trending lower 200-day moving average. The past two breaks below the 50-day moving average have had mixed results and traders need to implement some good account and trade management skills here.

NASDAQ-100 Trust Chart - Daily Interval

Earlier today we mentioned NASDAQ-100 component Adelphia Communications (NASDAQ:ADLAC) as a potential short/put candidate for traders and we see some similar technicals in the NASDAQ-100 based on retracement. One difference however is the positioning of the 50-day moving average, which the QQQ should have had some benefit from as support. In ADLAC, we noticed that the 50-day was acting as resistance (thus thinking technically weaker).

This has us looking closely at this 50-day moving average, which is being broken to the downside today and has the QQQ looking vulnerable to our retracement at $36.43.

What may be interesting to note is that back in June (left of chart) the QQQ broke below the 50-day MA and was never really able to close back above that 50-day, try as it might later that month, until after the terrorist attacks in late September. We will not that back in June, the NASDAQ-100 bullish % had fallen from an "overbought" reading near 80% to a June level of 50%. Then in late October, we see the QQQ broke briefly below a then trying to round out 50-day MA of $33.80, but at that time, the NASDAQ-100 bullish % ($BPNDX) was recovering from a dramatic decline of just 2% bullish and had reversed itself back up to a level of 60% bullish.

Today we see the QQQ breaking back below its 50-day MA and this break comes with the NASDAQ-100 bullish % reading 70% bullish.

I think there's going to be some bears in here, but I don't think they will be overly aggressive right now. Bears will be looking to leverage off the 200-day MA and retracement near $39.25, but I don't think they're going to try and "chase" a decline.

For traders looking short, I'd be patient and not get "over short" right now. Instead, look for some stocks that look technically weaker and offer favorable risk/reward trades, where relative strength is weak.

Whether you're trading stocks that comprise the QQQ or trading the QQQ by itself, try picking out some stocks that you feel should trade bullish and/or bearish in the QQQ, then monitor those scenarios going forward. Monitoring both the index and some stocks will help you get a better feel for things near-term and going forward.

Jeff Bailey
Senior Market Technician
Option Investor

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