When a short-term decline that is already a bit overdone experiences a downside acceleration it will often mean an upside reversal is ready to occur. QQQQ’s current pattern is showing a potentially powerful example.
These very simple requirements have led to some very strong results, both short and intermediate-term. Four weeks out the average trade has produced a gain in the QQQQ of over 10%. Even if this apparent upside edge does play out, I don’t expect to see gains this strong over the next month. Often the outsized gains were partially due to the volatile environment that was present when the study triggered. Many of these occurred during the wild 2000 – 2002 bear market in the Nasdaq. The current environment is carrying low volatility, so my expectations are dampened.
This downside acceleration concept is one I’ve found useful before. It is included in a few of the systems available with a Quantifiable Edges Gold Subscription. More details on the above study (and others) are available in last night’s Subscriber Letter. Click here for a free trial.