Monday, September 27th, 2021
Happy Marvelous Monday!
I help teach people to earn money trading options. It isn’t hard. I explain in easy-to-understand terms when I teach or write a book—like we are talking across the kitchen table.
Monday jumped into correction territory with both feet. The Nasdaq was down 3 out of 5 days, ending the week lower. Tuesday had swings, but ended the day down and then, the rest of the week tried to recover, ending down, but about where it was on last Sunday. The QQQs closed the week down only .09.
For updates on previous trades, please scroll down.
I am going to focus on the NASDAQ on Mondays and call it “QQQ Monday”. I will focus on QQQ which is the ETF covering companies traded within the NASDAQ Exchange Traded Fund.
For today’s discussion, we will be looking at Invesco QQQ Trust, symbol (QQQ).
Before analyzing QQQ’s charts, let’s take a closer look at the ETF and its services.
Invesco QQQ is an exchange-traded fund that tracks the Nasdaq-100 Index™. The Index includes the 100 largest non-financial companies listed on the Nasdaq based on market cap. These companies are often cut-edge tech stocks and trendier companies.
The image below is Friday’s price activity.
This chart image is courtesy of FINVIZ.com a free website and gives a quick view of each day’s movement.
This is an image from Friday where it dropped throughout most of the day. The carpet shows a lot of red. Many of the symbols with 4 or 5 letters are included in the QQQs- AAPL, AMZN, GOOGL, etc.
Fibonacci Exponential Moving Averages (EMA)
Exponential moving averages (EMAs) reduce the lag seen in simple moving averages by applying more weight to recent prices. The weighting applied to the most recent price depends on the number of periods in the moving average. We are applying 8, 21, and 55 weekly periods for our entry signals. EMAs differ from simple moving averages in that a given day’s EMA calculation depends on the EMA calculations for all the days prior to that day. You need far more than 10 days of data to calculate a reasonably accurate 10-day EMA.
There are three steps to calculating an exponential moving average (EMA). First, calculate the simple moving average for the initial EMA value. An exponential moving average (EMA) must start somewhere, so a simple moving average is used as the previous period’s EMA in the first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential moving average for each day between the initial EMA value and today, using the price, the multiplier, and the previous period’s EMA value.
Charting services like Stockcharts.com and your broker’s chart service figure these calculations for you.
As mentioned, entry signals are based on the use of 8, 21, and 55 weekly averages. (8, 21 and 55 are Fibonacci numbers which are a special sequence of numbers which are added together- 1+1= 2, 2+1=3, 2+3=5, 5+3= 8, etc. 13, 21, 34, 55, 89, 144, 233, 377, 600… As mentioned, we are zeroing in on 8 EMA (short term), 21 EMA (medium term) and 55 EMA (long term).
The details below show why this trade signal could produce a profitable trade opportunity.
Let’s See Why This Signal Potentially Offers Potential Trade Info
Each candle on the chart represents price movement over a 5-day (week) period. QQQ is apt to continue dropping if the EMAs head lower toward down-trending order. In March and May this year, price pulled back toward the 21 EMA and then, bounced up off that area. The last 3 weeks price has been heading down, as seen above, the end result is price dropping and then this week creating a hollow candle which means it is up off the lows. In general it is still hinting at a pullback like it had in March and May.
As long as the 8 EMA remains above the 21 EMA and the 8 and 21 EMA both remain above the 55 EMA, said to be in uptrending order, its current uptrend could remain intact, and price could continue to rise. Since the last three red candles are strong bearish ones, it creates an uncertain environment. If this week continues the downward trend, it will perhaps start a substantial pullback/correction, but we won’t know until we have the start of another downward week. We will keep an eye on QQQ’s movement over the course of the couple weeks.
Because of the uncertainty, I suggest we pause and observe this week. At this point, it is impossible to know how the market will open on Monday. Futures are flat as I type. The overall bias is down, but the last candle says it is trying to recover. It is a push – pulled tug-a-war.
Potential Profit Play for QQQ
Last week, I expected a down week, we had a down day, it was hard and fast. Tuesday was modestly down, and the rest of the week worked to recover. Based on last week’s trade action and how the week ended, I suggest we take a break and see how the month settles out. It is hard to trade a market that is swinging back and forth.
It is hard to navigate the swings, they make you feel like a day trader. Let’s sit on the sidelines for a week with the QQQs and see how trend develops into October which usually starts a positive quarter.
Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits, as well as making money when the price of a stock drops.
Remember, you can take profit anywhere along the line, you don’t have to wait for the expiration date to sell. It is often wise to take profit when it is earned, especially in a volatile market.
If price drops below the support line, it can be wise to sell to reduce loss. As the expiration date nears, the premium will lose an increasing time value.
EMAs and line crosses are at the heart of most of my strategies. Many strategies come with a weekly newsletter listing numerous potential trade candidates.
I love teaching and sharing. It is my “thing”.
PS-I have created this daily letter to help you see the great potential you can realize by trading options. Being able to recognize these set ups are a key first step in generating wealth with options. Once you are in a trade, there is a huge range of tools that can be used to manage the many possibilities that can present themselves. If you are interested in learning how to apply these tools and increase the potential of each trade, click here.
Past trade update:
Last week we discussed a Put trade if the QQQs dropped below 373.50. It did on Monday. We talked about an Oct 1st expiration (Oct wk 1) and a 358 strike with a 1.96 premium. The premium would have been higher than that on open. At the low of the day, the premium was as high 5.80 when QQQs dropped to 360.93. By the close the price of QQQs rose to 365.70 and the premium was still at 3.72 on Tuesday. You can read the article here: https://www.tradewinsdaily.com/daily-profit-play/has-the-nasdaq-correction-started/