No Losing Trades And A Horrifying Pattern On QQQQ
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A really important pattern that I think you need to see has happened on the Nasdaq.
Going back to the July period of 2008 you are able to draw three circles above the highs of a distribution pattern. The key reason why I refer to it as a distribution pattern is the fact that technically, it is not a Head and Shoulders or any other pattern. From analyzing the pattern nevertheless, we do note that it's really a distribution pattern that results from profit taking and shorting.
The three circles can be drawn over a strangely identical pattern that began in January of 2010 and that ended last week.
Now if we perform a trade triangle layover you will see that we have had a down monthly triangle. The reason that this is so important is that the monthly triangle is used to determine the longer term trend which is down. Just how accurate is the monthly trade triangle? Going through the chart you will notice that every monthly trade triangle since April of 2008 continues to be correct. Applying my Guerilla Stock Trading strategy of a 5% to 10% gain and also a 5% stop loss, we'd have made money on every monthly trade triangle signal since April of 2008!
The weekly trade triangle remains up so this means the monthly trend and the weekly trend are in disagreement. The question you have to ask yourself all comes down to whether the longer monthly downtrend will pull the weekly trend lower, or if the weekly trend has turned positive first and the monthly trend is soon to follow.
I do believe the case for a downward swing such as the variety we had back in 2008 when this pattern formed is a bit more likely. The reason why, beyond the truth that the larger trend trumps the shorter term trend, is the U.S. government came out last week and all but officially reported the economic recovery is now dead.
The new crises we now have is the fact that with the amount of people needing work, state budgets need to be cut. The cuts required are so severe that in some government sectors, 50% of the workforce has been laid off.
Perhaps Caroline Baum of Bloomberg News said it best: What we had would have been a government-approved course of amphetamines (to keep it up), antibiotics (to counteract infection) and antidepressants (to make it feel better). It lived with regular steroid injections from both monetary and fiscal authorities. And it retains no genuine muscle mass.
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