Q: Do I think there "should" be a sell-off before QQQ starts taking off? A: Yes! All logic points and the fundamentals do point out that there should be a sell-off. The QQQ needs to consolidate properly for a healthy gain. After the massive correction level sell-off, it is very unusual to see this type of bullish price action (unless its a crypto, which it is not). However, we need to keep in mind that the market does what it wants, it doesn't care what you or I think.
Q: What does the QQQ chart analysis say? A: In Short, the technical analysis says QQQ is bullish.
I mostly do momentum analysis. As you guys can look at my primary momentum indicator, DPO (Detrended Price Oscillator), just broke out of 0.00 level on the daily chart which means the bullish momentum is just starting to take hold. ADX and DI, though they are lagging indicators, the combination gives me a good insight of volatility and trend strength of the momentum, and it looks like volatility is stabilizing. However, I am expecting it to go sideways anytime. The positive DI crossing over the negative DI, suggests the trend is bullish. However, there is less evidence that bullish momentum is "trending."
If you look at the price action, it is well above the ema, which once again points to a bullish trend in the market. Patternwise, the price just had a classic watch break out, but the whole picture does suggest a megaphone pattern is forming which means the risk will be substantially high when the price hits the upper resistance (yellow line) at some point in the future. I also marked the red zone of danger in the chart; the sell-off could occur at that point as well.
Summing everything up, I think we completed ABC correction during the sell-off, wave 1 and two last week and now we are in the wave 3 phase. Wave 3 is usually the wave with the highest magnitude so if the theory is correct; the market is overly bullish next week before a massive fall.
A trader's dilemma! After seeing the huge sell off two weeks ago, it can be hard for traders and investors to ignore the possibility of another big sell-off. This temptation of making huge gains in the short-term does cause some trader to lose many opportunities. Trust me, I feel the same, but as a profitable trader, I know what I feel is not important, I need to trade with the trend.
Computers perform 90% of the trades in the wall street; the algo mostly look at harmonic patterns, LT support/resistance, volatility and short-term trend. They don't care if the stock needs to consolidate or not, they just follow the trend, emotionless, that how they are profitable.
Q: How am I trading this market? I am bullish one week. However, I am also hedging my portfolio with a naturally bearish stock GRUB 10% put option so if there is an unexpected sell-off, I can sell those puts for a massive gain which will recover my loss in no time. I am holding 50% cash. Please note, the bullish momentum trades I am doing right now MKL, MSFT, WAT are only good if the megaphone hypothesis is correct.
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Conclusion: If we go with the indicators, without emotion, the market is bullish which means there is less risk until it hits the overhead resistance market by the yellow line. That will be my initial assumption and the mindset I am trading this market. Now, if it goes bearish, I will go bearish in a heartbeat. (Refer to SPY, QQQ trades, look how I change from bearish to bullish or vice versa in a heartbeat, that's what it takes to be a profitable trader). If the Monday price action warrants a sell-off, I will close all of my bullish trade, take the loss and start short-term put positions.