Saturday, November 03, 2007

Qs Weekly Update

For the week, the stats are as follows:
DIA . .. -1.90 (-1.38%)
SPY . . -2.42 (-1.58%)
IWM.. .-2.48 (-3.02%)
QQQQ. 0.49 (+0.91%)
My safe haven theory about the Qs has played out well and my Qs trading has focused on buying the intraday S1 pullbacks and selling the R1 rallies. Looking at the weekly linear regression channels (top chart) however, there may be some concern for a continuation of this trend. The Qs have been at the upper channel band for 5 weeks now, with a modest pullback 2 weeks ago, followed by an engulfing bar that brought it back to the upper band. Many of the Qs components are wildly above their upper LR30 bands, while many of the DIA/SPY/IWM components are substantially below their lower bands. At some point, the Qs will be considered a poor value relative to other sectors, and we are going to see either a reversal or contraction in the Qs performance. My plan is to lighten up on my Qs long exposure for a while by hedging with some near term calls. The straddle that I described in last week's update has worked out well so far.

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