Nasdaq QQQ ETF Breaks out of Bull Flag

The April 22 Profit Radar Report showed this chart of the Nasdaq-100 and stated:

There are similarities between AAPL and the Nasdaq-100, which is forming a potential bull flag. A break above 4,465 – 4,485 (corresponding level for QQQ = 109.10) could drive the Nasdaq-100 to next resistance around 4,600. Aggressive investors may buy QQQ with a break above 109.10.”

The bullish breakout materialized, but how legitimate is it?

 

Below is an update chart of the Nasdaq QQQ ETF.

  • The breakout occurred on elevated volume. Bullish.
  • There’s on open chart gap at 109.55, which will probably get filled.
  • There’s a long-term bearish RSI divergence. Potentially bearish.
  • RSI may be about to close above trend line resistance. Potentially bullish.
  • Next resistance at 111.50 – 112.20.
  • Ideal bull flag target is around 112.50.

The trend is up, but lagging breadth and the open chart gap suggest an eventual pullback is likely.

AAPL, the MVP of the Nasdaq and most important stock in the world, shows one of the most fascinating chart formations. More detail here: Fascinating AAPL Chart Formation Telegraphed Bullish Breakout

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

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Is the Dow Jones Transportation Average Forming a Bull Flag?

The Dow Jones Transportation Average (DJT) has been on fire, since late 2012.

A V-shaped correction, and a prolonged period of sideways trading interrupted the parabolic up trend and there’s been no net gain since September 2014.

Trading action since the November 28 all-time high has been contained by a parallel channel, that looks like a flag.

In fact, the DJT may have formed a bullish flag formation.

A bull flag is described as a consolidation period that interrupts a sharp, almost vertical rally. The consolidation range is defined by a parallel channel with a slant to the down side, and tends to separate two halves of a steep rally.

A break above the upper boundary (around 9,150) would be the first step of a bullish breakout, with a measured up side target around 10,000.

Buying against support (around 8,500) is a low-risk buying opportunity to get in on the ground floor. It’s low-risk because the nearby support level provides a clear point of ruin (stop-loss).

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A break below 8,450 would void the bull flag and allow for much lower prices.

I doubt there’s enough buying power to lift the DJT to 10,000, but trade around 8,500 (or breakout above 9,150) offers some low-risk setups.

The iShares Transportation Average ETF (NYSEArca: IYT) is the most widely traded transportation sector ETF.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Can the Nasdaq QQQ ETF Break out of a Bull Flag Pattern and Rally 10%?

A bull flag is described as a consolidation period that interrupts a sharp, almost vertical rally. QQQ had a sharp rally from the October low and a pro-longed consolidation period thereafter. The classic bull flag breakout target projects a 10% rally.

The Nasdaq QQQ ETF (Nasdaq: QQQ) chart is simple, but packed with information.

QQQ has been consolidating for 2 ½ months. The consolidation range is defined by a parallel channel with a slant to the down side.

Channel resistance is at 104.  Resistance created by the January 23 and November 29 highs is at 104.58 and 105.25.

There’s also a Fibonacci projection level, going back to the October 2002 low, at 105.29.

I’ve read some articles that describe the channel consolidation as a bull flag.

What is a bull flag?

As the name implies, this pattern looks like a flag. A bull flag represents a digestive period after a sharp rise.

In a bull market, the flag is usually formed with a slight down trend and tends to separate two halves of a steep rally.

If this is indeed a bull flag, a breakout above 104 projects a target around 120.

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Is this a bull flag?

  • Duration: In their technical analysis books, authors Pring, Edwards and Magee state that flags can form for a period as short as 5 days or as long as 3 – 5 weeks. But a formation that lasts longer than 4 weeks should be treated with caution.

    This particular flag pattern is already 10 weeks old.

  • Trading volume: Trading volume should diminish appreciably and constantly during the pattern’s construction and continue to decline until prices break away from it.

    Trading activity dried up in February, but saw significant volume spikes early in the pattern.

In summary, the 10-week long QQQ consolidation pattern looks like a bull flag, but it does not meet the qualifications of a bull flag.

Nevertheless, certain measures of sentiment show above average pessimism for the Nasdaq QQQ ETF, which could support further up side.

Here is a bit more context: The SPDR S&P 500 ETF (NYSEArca: SPY) is gnawing on similar resistance, and the SPDR S&P MidCap 400 ETF (NYSEArca: MDY)  just broke to new all-time highs. The 104 – 106.25 QQQ range appears pretty significant for the next big move.

I’ve taken a pretty bold stand regarding the next S&P 500 move, and am watching the QQQ ETF carefully for clues.

My bold S&P 500 call is available here with the latest update posted here.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.