Last August I wrote that I saw a possible head and shoulders top pattern forming, but the market broke above the right shoulder and moved higher instead. I have drawn in another possible head and shoulders pattern in QQQ that has been forming. This week we will see if it is resolved like the earlier one, or is really a top. The steep decline on October 10, noted by an arrow on this chart, occurred with the largest trading volume in months and is very troubling to me. But our job is to react and not to predict. So let’s see what this earnings filled week brings. A close below 589.05 would be a sign of extreme weakness. I am ready to go long or short once this pattern is resolved.
I was doing my normal nightly charting when I noticed big volume declines in bank stocks. KRE is just one banking ETF that is typical of many others. Look at the huge volume today. Individual banks are falling after reporting great earnings. It is also strange that T2108 is in a BWR down-trend. T2108 reflects the percentage of NYSE stocks that closed above their 40 day simple moving averages. And GLD keeps rising. Something is wrong. This market reminds me of 2008. I need to protect myself. I am a chicken (vegan).
I saw it, but missed trading $GLD after it had its Blue Dot of Happiness signal on August 20. Two days later, on August 22, it climbed above its daily 5 EMA (exponential moving average) and has only closed below it once. One could have bought GLD on any of the bounces up off of the daily 5 EMA and profited greatly. During my recent TraderLion Conference talk on Day 6, I described the Blue Dot of Happiness signal and how I was using the 8 EMA. I have since found the 5 EMA to work even better for many rising stocks. Add the 5 EMA to your daily charts and see how many times advancing stocks bounce up off of this EMA. Note how GLD has traded between the 5 EMA and its upper 2.15 Bollinger Ban for the entire time. If I owned GLD I would become defensive the first day it closes below the 5 EMA. With this chart in mind, you too could create rules to trade GLD and other stocks showing this pattern. In addition to the chart of GLD, I show as an example, a similar pattern in IREN, which I successfully traded. I am not suggesting anyone should buy these stocks now, but only to learn this pattern and find other stocks beginning to track along their 5 EMAs. Why this can work, I do not know, or care. I have been using TC2000 to scan for rising stocks reaching ATHs and tracking with their rising 5 EMAs and bouncing up off of them. When I buy after a bounce, I immediately place a sell stop below that day’s low. Good Luck!
