Corrective Pressure

Monday's action in the Nasdaq 100 Tracking Stock (QQQQ) left much to be desired from the perspective of the longs. The morning's pre-open new high at 42.19 was followed by a decline below Friday's low at 41.87 - and has continued to an intraday low at 41.62.

This action represents a potential key downside reversal, which will warn us that perhaps the October-December upleg is running out of gas.

For the time being, however, we are watching the major support line, which cuts across the price axis at 41.60. If the Q's break and sustain below 41.60, then my work will argue that they have established a significant near-term peak, and are in the midst of a correction that should press to a minimum target of 40.80 prior to the next rally attempt.

Reviewing the blue chips, the Dow has a bit more corrective pressure ahead prior to the next loop to the upside for a run at new 2005 highs.

At this juncture, my work points to a marginal breach of last Wednesday's low at 10,804 into the 10,770 target zone prior to my expectation of a resumption of strength.

Although the S&P 500 has experienced some weakness, we can see from the daily chart that the price action has NOT caused any meaningful technical damage.

At this point, only a decline that breaks the major trendline, now at 1254.50 or so, will begin to compromise the powerful October-December uptrend.

Meanwhile, Monday's weakness represents a healthy pause ahead of the next upleg, which should thrust the SPX to new highs above the 11/23 high at 1270.64. My next upside target is 1277-80.

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his analysis of the E-mini S&P, the QQQQ Nasdaq 100 Tracking stock, and commodities and currencies.