Key Reversal Bar Seen on NASDAQ QQQQ

Sep 1, 2009: 12:27 PM CST

I wanted to highlight an interesting potential “Key Reversal” bar in the NASDAQ ETF QQQQ.  Let’s take a look:

Take a look at the bar I highlighted on August 28.  Price gapped upwards off the opening (due in part to the Consumer Confidence expectation) and formed a fresh 2009 high for the year… before reversing off the open and selling off almost the whole day.

Generally, a more ‘perfect’ key reversal bar would close lower than the prior bar, but what draws my attention to this bar is the logic behind it.

Imagine, you’re a bull and you see a long price advance and you’ve been sitting on the sideline, or have money you want to invest in the market that you’ve been holding.  All of the sudden, a gap occurs and you can’t wait any longer so you rush in and put your money to work, excited and fearful that you’re missing the rising boat.

However, price begins to sell off just as you are most confident and you now become stressed and confused.  Perhaps you hang on to your long position in hopes of a recovery (because now you are ‘underwater’) and if price continues to fall – like it is doing today (September 1st), then you ‘cry uncle’ and sell your shares at a loss.

Key reversal bars that gap up and then sell off all day are generally rare, but can be powerful short-term or even intermediate term trading signals, because it captures the euphoria of the bulls and then leads to downward movement as their hopes are dashed as they sell at lower and lower prices.

Beyond the key reversal bar drawn above, we see a critical negative momentum divergence as price tapped above the upper daily Bollinger Band – that’s enough reason to take a short-sale scalp/swing trade with a tight stop.

Study this pattern a little more and let’s see if we continue to get downside momentum from a possible ‘buying climax’ high.

Corey Rosenbloom, CMT
Afraid to Trade.com

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5 Comments

5 Responses to “Key Reversal Bar Seen on NASDAQ QQQQ”

  1. fiki Says:

    would you say there´s a 3 push pattern on 5-min spx? i think i see a divergens in the tick and macd aswell…

    thanx for a great blog.

  2. jmcdowell Says:

    Bought a slightly-out-of-the-money 39 Sep QQQQ Put. Target 37 is June resistance also 0.618 retracement of mid-July to Late Aug rise.

  3. scrillagorilla Says:

    “Generally, a more ‘perfect’ key reversal bar would close lower than the prior bar, but what draws my attention to this bar is the logic behind it.”

    I think that statement would hold a lot more weight if you had posted this on the evening of August 28, before the reversal, and not on September 1, after the reversal.

  4. jmcdowell Says:

    Bought a slightly-out-of-the-money 39 Sep QQQQ Put. Target 37 is June resistance also 0.618 retracement of mid-July to Late Aug rise.

  5. scrillagorilla Says:

    “Generally, a more ‘perfect’ key reversal bar would close lower than the prior bar, but what draws my attention to this bar is the logic behind it.”

    I think that statement would hold a lot more weight if you had posted this on the evening of August 28, before the reversal, and not on September 1, after the reversal.