The technology sector of the S&P 500 has relatively outperformed many other sectors in recent weeks and continues to be worthy of attention. Another way to look at the tech mix is by keeping the Nasdaq 100 (QQQ) index front and center on one’s watch list.
The QQQ as it stands is just about 30% higher for the year, and when looking at the index’s holdings it’s easy to see where the performance is coming from. As of Dec. 11th, the top three QQQ holdings are as follows:
Given the steep rallies in MSFT and GOOG this year, along with the constructive AAPL chart, traders should continue watching those three stocks closely.
The relative out-performance of the QQQ in recent weeks can be seen on the first chart below, where the SPY is in red and the QQQ in blue. You’ll notice a much steeper drop in the red line. It’s simple and straightforward, but if we are to see a Santa Claus rally then relative strength typically wins out, meaning it should pay to closely watch the blue line.
Another way to look at the SPY vs. QQQ relationship is by dividing one by the other. In this case, I divided the SPY by the QQQ, resulting in the following chart. The chart clearly shows that the recent under-performance of the SPY has broken a technical support level in the ratio and that more downside in this relationship is likely.
Given the importance of the three largest holdings of QQQ, I would be remiss not to add a multi-stock chart with all three of them here. AAPL, GOOG, and MSFT, while succumbing to some selling pressure in recent days, are holding their multi-month uptrends. They aren’t showing major divergence from their momentum indicators, nor any bearish reversals from the price action.
A further leg up into year-end or early January looks likely in these stocks, which could also push the QQQ to an even higher high.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.