Trade of the Day: PowerShares QQQ (QQQ)

The “Nervous Nellies” and talking heads were visibly upset with Wednesday’s market pullback and, once again, jumped off of the bull bandwagon. I knew this week’s action would shake out the weaker hands and encourage more Wall Street pros to take early vacations, but support was stretched, and that demands respect.

The Dow cratered 268 points, or 1.5%, to finish at 17,533. The blue-chips had little chance at holding 17,800, and Wednesday’s low reached 17,508. The close below 17,600 opened the door for a possible pullback to 17,350. Resistance is at 17,600-17,800.

The S&P 500 stumbled 33 points, or 1.6%, to end at 2,026. The index slipped below short-term support at 2,050, and the drop below 2,040 got 2,025 in play. Wednesday’s low reached 2,025. There is additional risk to 2,000 on a dip below 2,020. Resistance is fresh at 2,040-2,050 and prior support.

The Nasdaq tumbled 82 points, or 1.7%, to settle at 4,684. Tech made a slight pop into positive territory shortly after the open, but it was all downhill afterwards. Support at 4,675-4,650 was tested once again following the trip to 4,679. Tuesday’s low checked-in at 4,674, so the higher low will be slightly bullish if this level holds today.

The S&P Volatility Index ($VIX, 18.53, up 3.64) zoomed to a high of 18.92 after clearing resistance at 17.50 late in the day. The close above this level was bearish, but the bulls held 20. I said not to flinch until the bears hold 20 on a close, but this action also warrants respect.

So, while I’m watching the key levels I noted above, I have money on the line for a bullish bet in the Nasdaq via its ETF, the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ).

I recommend you buy to open the QQQ January 107 calls (QQQ150117C00107000) at current levels, which are around 55 cents.

I have recommended six profitable bullish QQQ trades to my Momentum Options members since the beginning of October and I think these QQQ options are at a great entry price.

My exit target for these calls is $2.00. I don’t have a stop loss in place at the moment, but there is risk if the QQQs trade to $103-$102.50. Short-term resistance for QQQ is at $105. But it’s possible the QQQs will make a run to $110 on continued closes above $105, and the recent 52-week high is north of $106, which is what I’m betting on.

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