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Stocks Whipsaw Creating Volatile Trading Patterns

David Becker
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www.iforex.com
Stocks Whipsaw Creating Volatile Trading Patterns

The S&P 500 SPDR (SPY) and Nasdaq 100 ETF (QQQ) forged intraday reversals last Thursday and followed up with gaps on Friday, but the bulls are getting cold feet already because both fell back into their gap zones this week. Short-term, this is not a good sign. The quick fall back suggests that we may be in for more volatility.

The QQQ ETF price action reflects a falling flag or small price channel over the last few weeks. The ETF reversed intraday on Thursday, gapped up on Friday and challenged the trend line on Monday. This initial challenge failed as the ETF closed weak and moved back into the falling flag today. A close above 99 would break flag resistance and this level marks the next hurdle for the bulls. The close on Tuesday reflects overall weakness.

The SPY gapped up and closed near the upper trend line of a falling flag on Friday. The ETF opened above this trend line on Monday, but fell back and closed right at the trend line. Tuesday’s move below 195.5 puts SPY back in the falling flag and the breakout is on hold. The Monday’s high can be used to mark the next hurdle for the bulls. The Commodity Channel Index is stuck in negative territory. A break into positive territory is needed to turn this short-term momentum oscillator bullish again.

Once again, the trouble extends in smaller cap stocks. The S&P SmallCap iShares (IJR) moved lower on Monday and closing below Thursday’s close. This means IJR filled the gap and negated Friday’s follow through. It did not take long for small-caps to move back to their under performing ways. Short-term resistance is seen at 105.10 and a break above this level is needed to revive small-caps.

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