QQQ: Tug of War

What a difference a day makes!

Our analysis of QQQ on Wednesday noted signs of bullish momentum waning on the daily time frame.

On Thursday, markets witnessed a broad sell off on the rise of geopolitical tensions. The QQQ opened at $95.63, moving to as high as $95.97, before selling off to close the day at $94.62.

Selling pressure took the QQQ down to as low as $94.32, which is just under the 20 Day Moving Average (MA), as noted by the orange line on the chart below:

$QQQ : PowerShares Nasdaq

Moving averages offer insight into the directional trend that an underlying security is trading in. They tend to also serve as key technical levels to watch for on any breakouts or pullbacks.

In this case, QQQ is trading above both the 20 Day MA (orange line) and the 50 Day MA (purple line), and both moving averages are rising, so the trend is up. The moving averages should be watched for any pullbacks in price.

On Friday, the markets bounced back as if the sell off on Thursday never happened. And the bounce was ferocious! QQQ gapped up at the open, closing the day at $96.12, above Thursday's high of $95.97.

A tug of war is in play here between the bulls and the bears. Interestingly, this is now the second time since the beginning of July that the 20 Day MA has served as a support on a pullback.

Although Friday's trading action was no doubt bullish, -DMI is still poking its head up above +DMI, as noted by the red arrow on the chart, so the bears are still in the game.

If the 20 Day MA can't hold on any subsequent pullback, I would look for the 50 Day MA to hold next, possibly when it gets to around $93, which would also correspond to the end of June breakout level. The 50 Day MA is currently resting at $92.09.