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Nasdaq 100 Is Up on the Year – Here’s How to Trade It

The Nasdaq 100 Index ^NDX is traded using the PowerShares QQQ Trust ETF Series 1  (QQQ) – Get Report. 

The ETF gapped above its 200-day simple moving average on April 13 and its 50-day simple moving average did the same the next day. 

This morning the QQQs traded above their annual pivot at $215.17, where positions should be reduced.

Positive news on coronavirus treatment and President Donald Trump’s plan to reopen the U.S. economy has the Nasdaq 100 higher again this today. Here are some details as reported by TheStreet.com.

On April 13 I wrote about Gilead Sciences  (GILD) – Get Report and I mentioned how the company’s drug Remdesivir had been tested by 53 hospitalized covid-19 patients worldwide with promising results. 

This was confirmed after the market closed on April 16, which is part of the fuel behind today’s market upside. 

This morning shares of Gilead gapped above their weekly pivot at $79.41.

The QQQs traded as high as $216.51 this morning, up 1.8% year to date and in bull-market territory 31% above their March 23 low of $164.93. They’re still 8.8% below their all-time intraday high of $237.47, set on Feb. 19.

The Daily Chart for QQQs

Daily Chart for QQQ
Daily Chart for QQQ

Courtesy of Refinitiv XENITH

The daily chart for QQQs shows how the 200-day simple moving average held at $174.30 back on May 31, 2019, as a buying opportunity. 

This buy was based upon the guideline as a golden cross had been confirmed on April 4, 2019. 

This was when the 50-day simple moving average rose above the 200-day simple moving average, which is a buy signal as higher prices were likely to follow. 

This signal was still in play at the all-time high of $237.47 on Feb. 19.

The price gap lower on Feb. 24 was caused by the spreading covid-19 which dominated the news headlines. 

The 50-day SMA failed to hold on Feb. 25.

The annual and semiannual pivots at $215.71 and $211.98 became magnets between Feb. 25 and March 5.

When these levels gave way, the 200-day SMA was tested on March 10. When this average failed to hold the meltdown ended with the low of $164.93 set on March 23.

The upside was a return to the 200-day SMA at $199.74 on April 7.

Once there was a gap above the 200-day SMA, the quarterly, semiannual and annual pivots at $208.83, $211.98 and $215.71 again became magnets. That continues today.

The Weekly Chart for QQQs 

Thw Weekly Chart for QQQs
Thw Weekly Chart for QQQs

Courtesy of Refinitiv XENITH

The weekly chart for QQQs is positive, with the ETF above its five-week modified moving average at $200.86. 

The ETF has stayed above its 200-week simple moving average, or reversion to the mean, now at $162.16.

The 12x3x3 weekly slow stochastic reading is projected to rise to 36.69 this week from 31.35 on April 10. 

This reading was above 90 during the week of Feb. 14, which put the ETF in an inflating parabolic bubble formation. 

This bubble has popped with the decline to the March 23 low.

Trading Strategy: Buy weakness to the 200-day simple moving average at $200.44 and reduce holdings on strength to its annual pivot at $215.71.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

Credits: Thestreet

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