An Island-bottom Reversal in NASDAQ-100 and QQQ

Given the proliferation of software tools that identify classical chart patterns, I suspect that many have already spotted the island-bottom reversal in NASDAQ-100 index and QQQ. However, experienced technical traders know that this pattern alone does not guarantee easy money.

The island-bottom reversal pattern is shown on the chart above. Also, the index closed just below its 30 day-moving average and the RSI(14) has crossed above the zero line indicating rising momentum.

However, my proprietary indicator, the MEI(14), diverges from the RSI(14). This can change after Friday’s close but for the moment it is an indication that something may be wrong and we may get a correction towards closing the breakaway gap that is part of the island-bottom.

Furthermore, the island-bottom reversal is considered a pattern with a high failure rate. Actually, as far as I am concerned it is not a very significant pattern and I only mentioned it here because I know many traders are looking at it due to the mentioned proliferation of software that identifies this type of traditional chart patterns. Traders should know that in the era of HFT and low latency trading it is becoming very difficult or even impossible to profit from such old notions. However, as long as many people use these patterns and brokerages offer these simplistic tools for their identification to their retail base, the HFT algorithms will keep accumulating profits daily at the expense of those who resist to move to the next levels.

Disclosure: no relevant positions.

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software.”)


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