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In November, we noted that the Nasdaq 100 (QQQ) was likely due for a short-term pullback after reaching the upper boundary of its rising price channel. That expectation played out as the index drifted lower over the past week.
On Friday, Invesco QQQ Trust (NASDAQ:QQQ) touched the lower boundary of its uptrending channel and its 50-day moving average, both key support areas, and then reversed to close slightly positive for the day. This intraday recovery formed a hammer candlestick pattern, which is often seen at short-term market bottoms.
In the lower panel, RSI (Relative Strength Index) declined to the 50 level, an area that has coincided with previous short-term lows. Together, these technical signals suggest that the market may have bottomed.
While confirmation is still needed, continued strength early this week would reinforce the likelihood that Friday marked a short-term low and that prices are poised to resume their advance. On the other hand, a decisive move below Friday’s low would signal a shift in character and could suggest the start of a deeper correction. Given the market’s longer-term uptrend, this remains the lower-probability scenario.
Our account benefited from the reduced equity exposure we implemented about a week ago when the market was at the top of its channel. On Friday, we sold approximately 75% of our index hedges based on the improving short-term setup. If the market continues to firm this week, I plan to remove the remaining hedge and begin increasing equity exposure.