Monday wasn't a great day for the bulls, but let's be serious. After last week's rally in the Invesco QQQ Trust (QQQ) or simply the gains stocks have logged since the start of the year, should it surprise anyone that traders hit the sell button?
If you don't focus too closely on the day-to-day price action of QQQ, I think we can agree that the lower highs and lower lows, the downtrend line and the struggles against the 200-day exponential moving average (EMA) are easy to spot. We also can probably agree that the QQQ has traded in a relatively well-defined channel over the past four months. So, while it's possible the sideways consolidation might be a base that will support a move higher, how brave do you want to be with the 14-period Relative Strength Index (RSI) trading above 80 (on Friday) and price dangling above the 200-day EMA?
If we adjust our look-back period to only the past few months or the consolidation zone, the bulls can devise a pretty good trading plan.
While I'm not interested in chasing strength in the QQQ, especially with a Fed news conference, an interest rate hike and a boatload of tech earnings on the horizon, my willingness to take a few shots on the long side increases as we test that rising 21-day EMA and volume-weighted average price (VWAP, in dark blue) anchored to the Jan. 6, 2023, bullish engulfing bar.
Assuming QQQ cooperates and dips toward the VWAP and 21-day EMA, I'll need to see two things to maintain a bullish posture. First and foremost, I need price to push above $300 and remain there for a few days. Second, I'd like the RSI to stay above 50 on the dip and climb back toward 80 with the QQQ trading above $300.
