In last night's Index Trader Wrap at OptionInvestor.com, we thought traders might want to monitor the Dow Industrials (INDU) 7,819 -2.24% and the Dow Diamonds (AMEX:DIA) $78.55 -1.57% for weakness on a break of the 21-hour SMA to perhaps signal further weakness in technology, specifically the NASDAQ-100 Index (NDX.X) 876 +0.3% and NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $21.80 +0.92%.
Within the last hour, this "scenario" has started to unfold and the Dow Diamonds (DIA) begins to break to a session low and violate our 21-hour SMA. From here, a trader looks to short the QQQ, but NOT OVERLEVERAGE in the trade. Our test near-term dates back to similar technicals found in the DIA when it also briefly broke below its 21-hour SMA, but then recovered three-hours later and the broader markets, including the Q's rallied.
Dow Diamonds (AMEX:DIA) - 60-minute chart
The current break lower in the DIA may have a QQQ bear looking to short some intra-day strength. The "thinking" behind my scenario is that a lower Dow Industrials, would have a technology bull questioning current strength and selling today's rally in the Q's. As time passes, a QQQ bear needs to not only manage his/her QQQ trade on its own merits, but looks for a BOLDER break below the 21-hour SMA to spell of DIVERGENCE from the past.
Currently profiling the QQQ short, with a stop above $22.25 and swing-trade target of $20.20 and shorter-term trader target of $21.45.
Traders that prefer to trade individual stocks, can also take the above "scenario" and observations made to see if weakness is found in stocks they're monitoring for potential short/put candidates.
Remember, good trade analysis begins with the MARKETS, then the INDEXES and then the individual STOCKS.