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Clerical error squared\? Or volume reversal\?

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As mentioned in our 11:00 update, traders have cited an early morning clerical error in a larger institutional buy in the NASDAQ-100 Index (NDX.X) or NASDAQ-100 Tracking Stock (QQQ) as a potential early morning catalyst for some impressive daily gains in the QQQ that now has traders scratching their heads as an offsetting volume spike, just below our "key" longer-term type of "pivot" at $27.00 in the QQQ has some traders thinking that bears look to defend the $27.00 level and still believing that equities are headed lower after the early "January effect" starts to fade.

We've discussed this morning's "clerical error" where it has been reported and "confirmed" in the QQQ chart that indeed there was some type of clerical error that had a trader initiating a bullish trade in the QQQ at the institutional level.

The reason I'm discussing this here is that my e-mail has been "overwhelmed" by bears that a suspicious intra-day spike in volume in the QQQ just below our key $27 level is a sign that big institutional bears, or liquidating bulls are looking to get out of the tech-heavy QQQ before the recent bullish "January effect" subsides.

NASDAQ-100 Index Tracking Stock (AMEX:QQQ) - 5-minute chart

Each night in the OptionInvestor.com market monitor, we publish some intra-day support, pivot, and resistance levels that shorter-term traders will use to trade from. I've placed today's QQQ "pivot" of $26.09 on the intra-day chart of the QQQ and we see how the QQQ gapped right up to today's R1. Then... as if some institutions was trading that level of $26.34, a "huge spike" was seen to $26.93 in that 5-minute interval. It's my interpretation that this is where the "clerical" error took place. Then... is if by "magic" the QQQ quickly fell right back to the intra-day R1 of $26.34 and began another rebound to find, then break above R2 of $26.74.

My e-mail started to fill up with questions regarding the rather suspicious "volume spike" of 2.75 million shares in a brief 5- minute time frame, which came just below our "key" $27 level, when we've discussed as being perhaps a pivot level dating back to December 4th, when on a daily basis, the QQQ broke weekly support of $27 on rather heavy daily volume of over 130 million shares.

I'm cautioning aggressive bears from interpreting this volume spike as being sign that institutions are set on selling the QQQ at $27 in an effort to hedge future downside in their NASDAQ-100 basket of stocks. The reason for this caution is that this "reversing" volume spike on an intra-day basis can also be interpreted (by me) as the offsetting trade by the clerical error earlier in the day.

For example, if your institutional client said to buy 200,000 QQQ above $26.34 at "market" and your trader accidentally added a "zero" to the order and placed the order as 2,000,000 shares at market above $26.34, we could well envision a sudden surge and taking out of offers in the QQQ to that 5-minute bar high of $26.39. Now, you're stuck with the excess of 1,800,000 shares as the institution placing the order. Your client got his/her 200,000, but you're left "holding the bag" of 1,800,000 long from $26.35 to $26.93. What are you going to do? Personally, I'd look to sell on anything back near $26.93. Consider my mistake a beneficial one, and get on with the day.

Still.... I don't know what the actual trade size "error" was, but am showing the above chart to give some caution to aggressive bears. I also think the displaying of the intra-day R1's shows some intra-day action of how traders, not just you and I, are actually using the intra-day pivot and support/resistance levels.

While the QQQ intra-day action is interesting, broader market action remains bullish with the bulk of indexes holding their gains.

Upside earnings comment from this morning out of Foundry Networks (NASDAQ:FDRY) $9.46 +16.06% still finds sector gains holding in the telecom and telecom equipment sectors. The Wireless Telecom Index (YLS.X) 58.93 +5.36% is currently today's sector winner. Subscriber that have been with us since early October will perhaps remember this sector as being the "early leader" off the bottom that was followed by the broader market rally. The YLS.X was the first technology sector to break above its 200-day SMA and last week's decline to 50.00 found support on the pullback into the 200-day SMA. From a longer-term perspective, sector bulls find encouragement from that support and renewed leadership from the sector with the December 2nd high of 66.01 back in play.

As it relates to the 200-day SMA, in last night's Index Trader's wrap, we made some comments regarding the NASDAQ-100 Index (NDX.X) and QQQ and their 200-day SMA's which had been pierced back to the upside on Tuesday, then saw the index fall back below the 200-day as if failure occurred, but today's rebound has the NDX and QQQ back above their 200-day SMA's as if to follow the leadership of the Wireless Index (YLS.X).

This action between the two most likely has some bears a little edgy at this point, and perhaps with good reason. After today's close, we'll be closely monitoring the various bullish % charts, which found the very narrow Dow Industrials Bullish % ($BPINDU) reversing back up into "bull confirmed" status. As it relates to the NDX and QQQ, a reversal back up in the bullish % ($BPNDX) would be a "bull confirmed" status, and if found, then a break above QQQ $27 would be deemed bullish and have traders looking for a test of the early December highs.

If so, then this January's first half of trading begins to resemble closely that found last January and may make for some bullishness into the end of the month. Alerts set at QQQ $27 and a close eye on the Bullish % near-term.

Jeff Bailey

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