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Date updated:12-20-2006

The QQQQ Sweet Spot

As Brett Steenburger points out in his insightful post on short-term trends in the market, the Nasdaq tends to sputter out after 2 up days. Here is a tradable way to play it based on a system called "the Sweet Spot"

SHORT: If QQQQ is up 2 days in a row, and then gaps up between 0.3% and 0.6% (the sweet spot), short at the open.

COVER: Whichever comes first: the end of the day, or QQQQ falls 0.5% from the open.

RESULTS:

There's been 71 occurrences since the QQQQs opened for trading in April 1999. 65 of the occurrences resulted in successful trades (92%). Average return per trade was 0.36%.

The system tends to trigger 5-15 times a year so can be used in conjunction with a portfolio of trading systems to enhance returns. We will present in the next few weeks a similar system that works on stocks.

• Trades
• Equity Curve
• Comments

• 
• QQQQ
  Powershares Excha
• $47.17
• +0.81%
• $46.82

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QQQQ The last 9 occurrences have been successful with the last three occurring on 11/1/06, 11/9/06, 11/16/06

People owning QQQQ also tend to own: ABTBKCATCSCOCTXDEDHI

• 
• SMH
  Merrill Lynch & C
• $27.36
• +2.09%
• $26.89

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Although the system is intended for QQQQ, it works ok for SMH (the semiconductor ETF) as well. 37 out of 43 successul occurrences for an average return of 0.31% per trade.

People owning SMH also tend to own: ATVICCJCELGCRZODSXDVNEMC

Simulated using 100% of equity per trade.

2000 – 6 occurrences - +2.9%
2001 – 4 occurrences - +1.92%
2002 – 2 occurrences - +0.96%
2003 – 15 occurrences - +3.96%
2004 – 9 occurrences - +2.12%
2005 – 7 occurrences +2.74%
2006 – 11 occurrences - +4.29%

(Click graphic to view larger image)