Markets have been under significant pressure since February 19, with the tech sector leading the decline. The one-year daily chart of the Invesco QQQ Trust (QQQ) illustrates this pullback. Despite the current sell-off, we remain in a bull market, and it’s well known among market technicians that the 200-day moving average serves as a strong long-term support in such conditions. Notably, during the last two visits to this level, QQQ experienced sharp rebounds, and we are seeing similar price action again. With QQQ approaching the 200-day exponential, it could be setting up for another bounce. One effective way to identify potential market reversals is by using the MACD (Moving Average Convergence Divergence) indicator. The standard MACD settings (12,26,9) are widely used, but they tend to lag, generating signals slightly after the market moves. To make MACD more responsive, I’ve adjusted the settings to (5,13,5). In the chart below, the blue line represents the MACD line, while the yellow line is the signal line. I’ve also highlighted past instances where a MACD crossover (when the blue line crosses above the signal line) has effectively signaled the end of pullbacks or corrections. While this crossover hasn’t occurred yet, it could happen as soon as next week, making it an important signal to watch for this potential trade setup. These setups are detailed extensively in my book, Mean Reversion Trading, available here: https://25k.link/book You can also find hundreds of similar examples on my website: https://tradingextremes.com The trade: QQQ 490-491 bull call spread To take a bullish position on QQQ, I’m utilizing a bull call spread. With QQQ trading around $488, this setup involves buying a slightly out-of-the-money (OTM) $490 call and selling a further ORM $491 call as a single unit. As QQQ moves, one can scale into the position by adding multiple spreads. For example, if QQQ dips to 480, a 483-484 spread could be added to take advantage of the price move. Here is my exact trade setup: Buy $490 call, April 11th expiry Sell $491 call, April 11th expiry Cost: $50 Potential Profit: $50 If QQQ reaches or exceeds the short strike ($491) by expiration, this trade has the potential to return 100% on the capital risked. For instance, with 10 contracts, the trade involves risking $500 to potentially gain $500. As QQQ rebounds, traders can ladder into the position, gradually increasing exposure to capitalize on these rare pullbacks in the indices. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
