QLD: Play What You See

(Click On Charts To Enlarge)

The market gapped down at the open yesterday. When it rallied and the QLD got back above the top of its channel (27.33), the NASDAQ remained well below the top of its channel, not confirming the QLD breakout, so I decided to sit tight. "When in doubt, stay out."

In Chart #3 of the intraday QLD, we can see that coming off the morning low, the QLD broke out of a Bullish Inverse H&S and rallied very sharply. The rally ended in a Bearish Wolfe Wave 5 "Fakeout Breakout" while the NASDAQ still was about five points below its breakout in the daily chart. Given the fact that the QLD had broken out in the daily chart, I respected that, and didn't short the Bearish Wolfe Wave.

In Chart #4, however, we can see that another bearish pattern formed in the intraday QLD: a Bearish Descending Triangle. At that point, the Dow, SPX and NASDAQ Composite were looking weak, so I went ahead and shorted it, knowing that the target that would be IN PLAY in the 27.40's was above the 27.338 breakout in the QLD daily chart. There was plenty of room for a retest.

Note how 28.11 and 28.10 were support for the Descending Triangle (pattern in white), and how 28.11 and 28.10 exactly later became resistance after the breakdown. Ms. Market certainly isn't always that exact, but when she is, that indicates to me that players really are paying attention to support/resistance areas and that they are "buying/buying to cover at support, and selling/selling short at resistance."

Chart #5: I covered at 27.50, a little above the target and above the breakout, for a gain of $2,500. Although the QLD didn't hold the morning rally, it still was trading above its channel in the daily chart, so I didn't want to play around with being short an upside technical breakout. Shorting the QLD wasn't at all what I expected to be doing yesterday, but it's an example of "Play what you SEE, not what you think."