Friday, June 18, 2010

Will 50 day MA confine QQQQ?

The 50 day MA acted as support most of the ralley over the last year. Since the sell off that started in May QQQQ has traded beneath its 50 day MA and I am willing to make the bet that the 50 day MA holds as resistance this time. I bought 5 July '10 47/45 put spreads for $0.58. My stop will be a close above the 50 day MA which is currently around $47.40 on the QQQQ. So I am only risking about $100. I want a short leash on this one. Here is a look at the chart:



5 comments:

  1. So looking at the 50DMA as support this past year, had you put a stop below that level it looks like you would have been stopped out three times in July, Nov, and Jan, yet each time a bull call spread would have most likely been profitable. So how far above the 50day are you going to use as a sign to exit the trade? And what kind of relationship is there between support/resistance lines and moving averages? So far with TA I'm starting with the basics and just using support/resistance as inputs to consider until I can learn more about TA.

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  2. My hard stop is $48 on the QQQQ. There is not direct relationship with MA and support/resistance lines except when they both happen to line up at the same place it makes some levels more importand and/or they get defended more. But a lot of times MA act as another form of support or resistance. In an uptrend it acts as support and in a downtrend it acts as resistance. I am making the bet that this dip is different then the previous three, I am not sure the market has the going power it needs to resume the uptrend. But if it trades solidly above this line then I will except that I was wrong and take my loss.

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  3. So I woke up to a market that was gapping up this morning on news out of China. The QQQQ actually opened above its 50 day moving average, but was clearly rejected up there and has since traded back below. But this trade above the 50 day moving average has now given me a stop out pivot. I will use todays high of 47.68 as my stop on this short position.

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  4. I used this mornings open as an opportunity to get out of this trade for a break even trade. After yesterdays price action, I was expecting to see a down open. It did not feel like we were going to get that, so I closed the position as I lost my conviction on the trade.

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  5. So it looks like we got that sell off after all. But the QQQQ has been showing relative strength to the SPY. So I am comfortable with the exposure I have to the downside with the SPY alone.

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