Updated Analysis on Tech (QQQ)

This is the daily chart of SQQQ.

SQQQ is the ETF that tracks the Nasdaq 100 ETF ( QQQ ) inversely. When tech stocks fall, SQQQ rises. Traders, therefore, use SQQQ to short tech stocks, or to hedge against a collapse in tech prices.

There are several bearish signals appearing in the daily chart of SQQQ, which hint that we may soon see bullish movement for QQQ and the Nasdaq.

First, there is decreasing volume in the daily chart of SQQQ, which shows that fewer and fewer market participants are opening new short positions against the Nasdaq. This is occurring even while the price of SQQQ continues to move up. This divergence is bearish and is usually the earliest sign that a reversal is coming.

Second, there are major gaps up appearing on the daily chart. Gaps to the upside on SQQQ have historically never failed to close back to the downside. Therefore these gaps should be viewed skeptically, as they fail to validate upward price action.

Third, the upper limit of the Fibonacci Bollinger Band continues to act as strong resistance, continuing the more than a decade-long trend whereby price cannot sustain itself above this line on any sustained basis. This line has mathematical importance, it reflects a level of price deviation where, after being reached, price begins to show a mean-reverting tendency back to the downside. In this case, SQQQ's mean reversion would be bullish for QQQ and the Nasdaq.

There are many other indications that are showing that SQQQ is too overextending, including the extremely over-heated Stochastic Heat Map.

The NDTH is also indicating that a very significant bottom is forming for tech and the Nasdaq. In fact, the Nasdaq is so oversold that the current levels have not been seen this the market crash of 2008-2009. Therefore, SQQQ has effectively priced in a significant recession. While a significant recession might indeed be on the horizon, if a significant recession does not ensue, then we can be fairly certain that a major short squeeze for SQQQ will occur:

However, the strongest bullish argument for SQQQ (bearish argument for the Nasdaq) is that weekly price broke through the Ichimoku Cloud for the first time ever. The only plus here is that the weekly candle is a spinning top and most oscillators are trending back down.

Regardless, with SQQQ being this historically overextended, it can represent a rare opportunity to buy QQQ and tech stocks before a massive short squeeze occurs. While anything can happen, and one should always use stop losses, this chart does not convince me that SQQQ is about to breakout much higher to the upside. Therefore, I remain a holder of tech and growth stocks for the intermediate-term.

Not financial advice. Anything can happen and trends can end.

Comment:

As it turns out, one month later, I had correctly called this June bottom and my warning to the shorts then (those holding SQQQ) was correct. Although I can definitely see August and September retesting the lows to some degree, lots of people who shorted tech or bought SQQQ on June 17th when I posted this are regretting their positions now. I can see in the charts clearly what smart money is doing, and knowing what smart money is doing is one of the most important things you need to be a successful trader because they are the market movers. As an aside, I could see in Bitcoin's chart that strong hands were accumulating on the day that the government of El Salvador was accumulating, and I could see in the Bitcoin chart that smart money was accumulating on the day before the FED meeting this past week. Charts show so much more than support and resistance and moving average crossovers, etc., they actually show what smart money is doing. The master key is being able to look at a chart and see it.

Comment:

SQQQ is up to its usual trick of trapping traders who are fearful. The daily chart has two gaps below. Gaps below have never failed to close in the history of SQQQ. The way that this product works would lead to these gaps closing even if one expects the Nasdaq to decline over the coming years. The stock market does not move in a manner that would permanently leave gaps to the downside on this inverse derivative product. This product, by its nature, moves in exponential decay. Could be easy money to sell a spread on these gaps when QQQ prints a bullish daily candle. Not trade advice. As always, anything can happen.