ChartWatchers

QQQ Forms Island Reversal with Big Move

Arthur Hill

Arthur Hill

Chief Technical Strategist, TrendInvestorPro.com

While gaps are not what they used to be, there were a few island reversals on the charts this week. The chart below shows the Nasdaq 100 ETF (QQQ) with a large island reversal over the last three weeks. A bullish island reversal forms with a gap down, a consolidation and then a gap up. The two gaps match, which makes the price data in between appear detached – like an island. Traders establishing short positions between the gaps are trapped on the island with losses.

111202qqq
Click this image for a live chart.

The chart above shows QQQ with a bullish island reversal. The ETF gapped down on November 21st, consolidated and then gapped up on November 30th. Actually, there was even a reversal within the consolidation. QQQ formed an inverted hammer on Friday and then gapped up on Monday. Follow through with Wednesday's big gap completed the island reversal. In general, a gap up is considered bullish as long as it holds. The gap zone turns into the first support zone to watch. A bullish gap should hold. Failure to hold this gap would be bearish.

Good trading!

Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More