Bullish and Bearish argument

Posted by downtowntrader | 4/23/2007 09:44:00 PM | 0 comments »

Today ended up being a probable consolidation day on lighter volume for most indices. While this is usually constructive, you need to be cautious anytime a chart is printing dojis near resistance. I can make a bullish or bearish case at this point, but I have to lean with the current trend which is higher. Below is some of the logic that I used to arrive at this conclusion.

UltraShort QQQ ProShares (ETF) (Public, AMEX:QID)
In looking at QID, which is an inverse fund of the Nasdaq 100, I can see a chart that is quite oversold, and sitting on support. Typically, I would look for a candle pattern to emerge in this area for an oversold rally trade. While the chart is looking like it is due a bounce here, there are a couple things that are signaling red flags. First, OBV is horrendous here leading price down. RSI is also making fresh lows coinciding with price. In this type of trade I typically scale out some shares at the declining 20sma which offers a decent play here, but the chart of the Q's is warning me away here.

PowerShares QQQ Trust, Series 1 (ETF) (Public, NASDAQ:QQQQ)
The Q's are showing me an argument for the bullish side. While I can see a little more weakness in the next few hours of this chart, overall this pattern looks constructive. It looks like a couple breaks out of broadening wedges with more room to the upside. One of the things that jumps out at me here is the ratio chart of the Q's vs the SP500 showing the Q's taking the lead. This usually happens in a bullish environment as market participants are willing to take on more risk.

Marathon Oil Corporation (Public, NYSE:MRO)
Oil was running higher today and some oil stocks were looking pretty good. MRO is looking to find some support on an internal trendline and the previous breakout area. Usually converging support holds so I am looking for a breakout here.

Good Luck,