The PowerShares QQQ Trust (QQQ) moved sharply lower in the first hour of trading, and then a morningstar pattern formed on the 10 minute chart and reversed the trend. A morningstar pattern is a three period bullish reversal formation, that consists of large dark candle, followed by a narrow opening and closing range doji candle, and completed by a large white candle. It represents transition from bearishness to bullishness. The doji candle in this case could be classified as a hammer candle, and the long lower tail indicates sellers were in control initially, but buyers stepped up and took prices back into the upper half of the range.
A bullish hammer may have formed today on the daily chart, after price tested resistance-turned-support in the area of the March highs, however this candle may also be interpreted as a bearish hanging man candle. A hanging man candle is identical to the hammer candle in construction, what determines the difference in interpretation is that the hammer forms in a downtrend, often near support, and the hanging man forms in an uptrend, often near resistance.
So, over the intermediate term, the QQQ has been trading in a rising channel and is testing channel resistance, a hanging man scenario, and over the shorter term it has bounced off the March high support line, and has the potential to be a hammer candle. Confirmation is always key. A close below the March highs reinforces the hanging man scenario and a break above this week’s high or the upper channel line suggests the hammer scenario.