A short squeeze Thursday afternoon had set the stage for a decent rally Friday as long as the labor report didn’t stoke fears of weakness in the economy or the Fed tapering asset purchases soon.
The price action in stock index futures indicates stock bulls are treating Friday’s numbers as being right in the sweet spot. Amid near-term risks, this rally could end up creating an opportunity to go short PowerShares Nasdaq ETF (QQQ) or long ProShares UltraShort ETF (QID) next week.
CHART ACTION
The QQQ tested the bottom of a bear channel Thursday and bounced sharply in late trading, as you can see on the 60-minute interval chart. The spike in volume on the daily chart supports the case for a capitulation that could drive gains in the coming days.
Price is now on a course toward the top of the channel. The upper barrier comes in right around technical resistance at 73.21 by Monday afternoon, based on a 50% retracement of the 5/22-6/6 decline. Keep in mind momentum on the daily chart is still deteriorating, as indicated by the decline in RSI averages.
From a swing trading perspective, there should be opportunities on the short side of the market at some point in the coming days. It’s no longer a market to blindly buy dips after the run since November.
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