Yesterday, equity prices did a bit of consolidation for most of the day. The QQQs formed a triangle pattern in the AM, moved lower in a nicely organized channel and then broke out, moving sharply higher on extremely strong volume. The reason for the jump was the news story that China and Italy were in talks, with China possibly providing financing not only for Italian bonds, but also possibly providing capital for some Italian companies.
Pulling back to the 10 day view, we see the QQQs are consolidating in a triangle pattern.
On the daily chart, the QQQs are right below an important two year trend line and the 200 day EMA (which is also moving lower). But the shorter EMAs are moving sideways and are intertwined, indicating traders are neutral on the short-term outlook. Prices are consolidating, with the upper and lower bands of their consolidation range tightening.
The dollar -- which was in a strong upward trend for most of the day, formed a double top near the end of trading, and then sold-off big on heavy volume on the Italy news. As I mentioned yesterday, the dollar is very over-extended so a sell-off to consolidate gains wouldn't be a bad thing.
