NASDAQ: Start Of A Moon Shot?

I was reading another blog, and there was a comment to the effect that it appears like the NASDAQ (^IXIC) is a moonshot. This reminded me to check my price charts that contain the key price levels. Figure 1 is one such chart, and it is a weekly chart of the Power Shares QQQ Trust (QQQQ).

With the weekly close over the highs of the negative divergence bar (marked in pink, with blue up arrows), there is a high likelihood of a moonshot as this is the definition of the “this time is different” scenario.

Figure 1. QQQQ/ weekly

I previously mentioned that the “this time is different” scenario occurs on a weekly close over the high of a negative divergence bar. Negative divergence bars between price and momentum oscillators that measure price indicate slowing upside momentum. In anticipation of a market top, traders will take positions as these negative divergence bars begin to appear. My research shows that a weekly close over the highs of a negative divergence can lead to an accelerated price move - hence, our moonshot - and it is my belief that this is due to short covering as traders cover losing positions.

For shorts and those on the sidelines, this continues to be a tough market.

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