Hi everyone, and welcome back to the blog. Despite being down a significant amount most of the day, QQQ closed up and continued to move up in after hours trading. You can find the daily chart of QQQ below.
We got the reasonably strong reaction off the 200-205 support level we discussed a few days ago, which is a reasonable sign for the bulls. Something interesting is that this move down is extremely quick, with no “dead cat bounces” in between, suggesting that this move may take longer to correct from than previous downward moves. Let’s look at longer term charts below this chart.
Below is the weekly chart of QQQ. I think we work our way down to the 180-190 zone in the next 2-3 months, but I think we recover some losses starting next week. I would be very surprised if we will get anywhere near 220 in the next few weeks (and if we do, I’m bullish in the short term again).
Either way, now is a decent opportunity to add some long positions if you are looking for a very short term rebound. Otherwise, for longer term investors, waiting until prices drop to the 180-190 zone makes more sense.
5 thoughts on “2/29/2020 Markets drop and rebound at mentioned support level. Will it hold? Should we nibble here?”
I regularly follow your posts. Thanks for the great work. You are someone who understands the support and resistance very well. Curious, what is the theory behind ? —> “dead cat bounces” in between, suggesting that this move may take longer to correct from than previous downward moves.
If you could share, what is your source of knowledge apart from regularly following the markets? I meant any books you recommend.
Thank you so much for sharing your knowledge, your posts are helping me learn. It would be nice if your posts are lengthy 🙂
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Thank you for the kind words! The theory behind dead cat bounces is that after a sharp move downwards (like right now), the people that really wanted to sell already did, and so there’s excess demand (more demand than supply) in the market which causes the price to rebound sharply and quickly.
In terms of books, I’d recommend “What I learned losing a million dollars by Jim Paul,” and the Market Wizard series. These books are more geared towards having the right mindset and having a trading plan while trading, rather than teaching specific patterns to trade. I value information that changes the way I think, and these books did just that. Please don’t hesitate to ask if you have any further questions regarding this answer or anything in the future. 🙂
P.S. The length of the posts are longer when the market moves more, so hopefully we get some bigger swings so there’s more to write about. Enjoy your day.
Thank you for sharing your views, and the book titles. I very much agree with having right mindset, more often than not the right mindset wins over any pattern. However, I find you understand underlying rationale behind support and resistance with more clarity. Wondering, if you can read any books to better grasp support, resistance and RSI? I am following your posts for more than year or so, and I think you just use 3 indicators to make your thesis. Curious, if there any recommendation this?
Regarding the dead bounce question, I was actually referring to your comment on the post “with no “dead cat bounces” in between, suggesting that this move may take longer to correct from than previous downward moves.”. How do you say that when there are “no dead cat bounces” the correction could take longer? I am neither long or short, I am genuinely curious to understand the underlying thesis.
I really appreciate you taking time to respond. Stay blessed!
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Hello, the support, resistance ,and RSI measure most things other indicators will do. I want to keep it simple so I only use these – I don’t recall seeing much of this in the books I read.
For the dead cat bounce question, I made the comment because I recall in 2018 and 2019, when we had violent moves down, they were followed quickly by a lot of extremely violent upward moves, which I didn’t see in the current move down – hinting to me that buyers were not as interested in the current prices as they were in 2018 and 2019. As of writing this, I think we have a violent upward move developing today.
Got it. Thank you!