A Weekly Picture of The Cubes

Qqqq2006224 The weekly chart of the NASDAQ QQQQs shows four main points of interest, which, when combined, suggest that the Cubes may be trying to round out the bottom of their thus far 7-week base, which began on January 11th at $43.31, the current 52-week high.

The circled areas on the price chart show (1) the bottom of the October 2005 base, and (2) the thus far bottom of the current base.  Both areas span weeks 4, 5, 6 and 7 of the respective bases and show remarkable similarity.

Point One: Both areas form below a downward sloping 50-day EMA and above an upward sloping 200-day moving average.

Point Two: Both show tight price action.

Point Three: Both areas show some turnbacks on their first few attempts to close back above the 50-day EMA.

Point Four: The most notable difference in the price patterns is the volume picture.  The October lows came on high and above average volume, while the current base shows four weeks of declining volume, with the current week being the lightest of 2006 (this week’s volume was skewed low due to Monday’s president’s day holiday).  The other volume related point of interest is the OBV (On Balance Volume) indicator, which made a new high this week even though we are seven weeks into a base.  This indicates that, on balance, the Cubes have been under some accumulation within the current base.  This contrasts with the October 2005 base, which at the point seven weeks into the base showed the OBV line in a 7-week downtrend and trying to find a bottom.

What’s it all mean?  If the bottom of the base holds and we get a decisive break above the $41.50 (see prior blog posting) it would likely mark the beginning of a tradable rally that could take us to a seasonal high around the April / May time period.  How will you know we get a decisive break above $41.50?  If / when it happens it will come on volume and a tall white candle with little to no upper shadow (i.e. a close near the high of the day).  This coming week should be the one to watch for the market to give the thumbs up or thumbs down signal.  Cheers!