February 1, 2013 (4:30 pm)
The market launched upward today on an average jobs report and a slightly better than expected consumer confidence level. Will the market continue up here? After five straight weeks in the green, it wouldn’t be surprising to see the SPY take a breather next week.
QQQ Hitting Significant Resistance. The NASDAQ (primarily composed of tech stocks) again tested a significant long-term level of resistance today. This resistance at $67.75 held the shares down eight out of ten times over the past year. It leaped over this trend line one time leading up to the “QE3 Top” in September, and found short-term support there, before falling back below it.
So why is that so important?
Symmetry. If you take a look at the head and shoulders chart below, there are a few things to notice. The first is that the left and right shoulders are currently at the exact same level – the $67.75 support/resistance line. Chart patterns tend to be most accurate the more symmetrical they are. The second is that each peak occurred on a lower RSI than the previous one. This is a signal that momentum to the upside is waning. The third, and most recent, development, is that the right shoulder is forming in the exact same manner as the left shoulder did.
If you look closely, the left shoulder formed on a double top. The market tried twice to break through that $67.75 resistance level, but couldn’t. A reversal quickly ensued. Similarly, we again tried to break through that resistance line today and failed. Unless the market is able to quickly break through that level early next week, the shares will likely reverse after two failed attempts. A double top here has a target price of $65.50, which just so happens to be the gap fill.