Sunday, January 01, 2006
Marketz : QQQQ and SMH technicals
QQQQ and SMH are probably the two most technically significant ETFs because of the liquidity of their shares, options and their tendency to lead the larger markets. We take a look at their charts.
A lot of people discount late Dec chart action citing reasons such as low volume, year-end markup, tax-loss selling,etc. But prices don't lie, right ?
The decline of the last two weeks resulted in gaps being filled on both the quads (40.78-40.85) and the semis (37.58-37.73). A new gap was created Friday at 40.63-40.58 in the QQQQs that may get filled this week.
Both the QQQQs and the SMH are sitting right at their 61.8% Fibonacci Retracement Levels. SMH is also at its 50 DMA. I dont expect the 34.43-34.61 gap on the SMH to be filled anytime soon-that is a remote possibility at this point. In the near term, I see one of two scenarios unfolding :
Scenario 1 : Bounce from these levels, implied volatility (VXN right at 50 DMA) slips and the uptrend that started in late Oct is intact.
Scenario 2 : RSI is not yet in oversold territory on either chart, so a further retracement to a lower level is possible. If the retracement is to the 50 % level, implied volatility will remain static or increase (but not spike). If the retracement occurs to the lower 39.2 % level, QQQQ gap (39.46-39.68) will be filled and expect implied voltaility to spike as fear sets in among sellers of the 35 puts on the SMH and 39 strike on the QQQQs.
Finally, note that the 50 day and 200 day moving averages for both ETFs are still sloping upwards.