Question:
How do you feel about the weekly/monthly index charts and the implied weaker momentum on this rally?
In answer to this question, I will use two QQQ charts: my nearer-term, 4-hour candle chart that shows the April-August uptrend and my big-picture, weekly chart that shows all of the QQQ action since the major low in February 2016, from where the ongoing intermediate-term upleg commenced.
The hourly chart shows the well-defined, and still-intact, April-August bullish channel that hit its momentum peak in mid-July and its price peak on July 25 (183.02). The QQQ near-term set-up exhibits upside momentum failures and a recent rally that failed to either fully test the July 25 all-time high or make a new high. This, in theory, leave behind a vulnerable, unconfirmed, momentum-price relationship that traditionally has lead to a correction.
The big-picture, weekly chart of the QQQ's shows the post-February 2016 uptrend. It hit its confirmed momentum-price high on January 26 at 170.95. Every subsequent new all-time high has been accompanied by a lower-high in momentum. In my experience the more instances of momentum vs. price failures, the more intense the eventual breakdown.
The weekly chart itself is also fascinating to me because all of the action since the April 2018 low (blue shaded area) has the right look of a "trend-ending" rising wedge formation within which we also have an hourly set-up that appears to be running on less than optimal momentum.
Bottom Line: The anecdotal technical evidence that exhibits classic glaring negative momentum divergences is warning us that we should not be surprised by a sudden QQQ price implosion, which makes this a very precarious big-picture set up. That said, it is all about price, right? Unless and until QQQ weakness violates its lower channel boundary line (176.65 currently), the momentum divergences are relegated to a flashing bright amber light indicating that the underlying power of the bull market leaves much to be desired.
If in fact some of the FAANG stocks have peaked – FB and NFLX – and if AMZN, AAPL and GOOG are peaking, then heeding the momentum warning signs exhibited by my weekly QQQ set-up may be a prudent near-term approach to the market.