QQQ Review
Background
Last couple of weeks I have not maintained my basic discipline of “trend following” and, in hindsight, I realize I have been predicting more than following. I am doing this specific QQQ review because this behavior was most demonstrated by me using QQQ and I have lost money in the process.
While QQQ technically has been overbought for a while, it has not given any indication that it is tired of continuing to go up. We also know that eventually QQQ will go down as that is the nature of markets. But I should remember that no one knows when it will start going down. No one other than QQQ. When it is tired it will tell us that it is tired and wants to go down.
Summary Analysis
The Top 20 stocks make up 71% of the ETF. Out of these Top 20, 7 are currently trending bullish or potentially turning bullish and 13 are currently trending bearish or at risk of turning bearish.
Considering all 102 stocks, the picture is more in favor to the bullish side. There are 64 that are either currently trending bullish or potentially turning bullish, and 38 that are either currently trending bearish or at risk of turning bearish.
Note that my trend analysis is based on very short-term indicators (mostly the MACD) and usually the time-frame ranges from a few days to a few weeks. This is important as analysis using different timeframes produces different results.
The charts continue to show the price as overbought. The MACD line has never been this high in the last 4 years and price is also way above the 150-day moving average. The price has also hit a resistance level at 370 the last 2 days and closed lower than that. If price starts to fall the next support is at around 348 and then below that around 333.
I have learned my lesson and will not be jumping into a bearish position until I see proof of weakness. That proof will be demonstrated by the MACD histogram reducing consistently for 3-4 days. So far it has only been 1 day.
Top 20 Components and Weight
Top 2 make up 25.27% of the ETF.
Top 10 make up 59.06% of the ETF.
Top 20 make up 71.35% of the ETF.
The general perception is that the QQQ (NASDAQ 100) is all technology stocks. The bulk is, but there are other components as well. Here is the current breakup by Invesco.
Trend Assessment of components
Out of the 102 underlying stocks within the ETF
55 are trending bullish.
9 may be turning bullish.
15 are trending bearish.
23 may be turning bearish.
Out of the Top 20 underlying stocks in the ETF
7 are trending bullish.
0 may be turning bullish.
4 are trending bearish.
9 may be turning bearish.
Chart Observations
I start with a long-term 4-year chart:
I have a horizontal line indicating the current level of the MACD line. We can see that the MACD line has never been this high in the last 4 years. I also have the 150-day moving average shown in purple color. We can see that the price is way over this trendline and will likely close this gap to some extent in the future.
Next the 1-year chart
This shows how price traverses around the Bollinger bands that I have plotted. Each time price reaches or crosses the top of the band, it has either stalled or retreated. The same is true for the reverse. If price just stalls, there may not be much opportunity for a good trade other than a few down days. In combination with the MACD this is a good indicator. We are currently in that toppy situation and have just had the 1 red day of either a stall or the beginning of a downtrend.
Now the short-term 1-month chart:
I see the current range between 348 and 370 indicated by the red horizontal lines. The price actually crossed the 370-mark last 2 days but then closed below that mark both days. So, that 370 resistance seems to be holding for now. It has been only 1 red day after 6 green days. So, I am not looking at this as a reversal. If price starts going sideways or down the next couple of days, then we can review again. There is an unfilled gap at 332.91 which is -9.52% below current level. If price starts to fall that would be a target level price can reach.