Today Is Judgment Day for the Nasdaq-100 (QQQ)

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The Nasdaq-100 — as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) — rallied strongly over the past week and a half, which last week was aided by earnings reports from Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Netflix, Inc. (NASDAQ:NFLX) that led to major rallies in those two stocks.

beatthebell_185x185After this most recent rally, the QQQ exchange-traded fund is well overbought and trading just a few points away from its all-time highs set in the year 2000, just as its two largest components, Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT), are set to report earnings.

For the near term, today is judgment day for the Nasdaq-100.

AAPL and MSFT stock together make up for more than 20% of the Nasdaq-100. Toss in GOOGL stock and those three make up a whopping 25% of the QQQ ETF’s holdings. Simply put, the price movement of these three stocks combined in coming days will most likely dictate the near-term direction of the Nasdaq-100.

QQQ ETF Charts

On June 19, I mused that the QQQ ETF could reach fresh all-time highs before a better mean-reversion move lower sets in. I also laid out a next upside target near $114, which has now been reached.

As such, the longer-term picture for the QQQ ETF continues to look constructive, as the latest rally has now turned the momentum back up, as represented by the Relative Strength Index (RSI) in blue at the bottom of the chart. The all-time highs near $120 set back in the year 2000 still look like a possibility, but as we will see next, the recent rally begs for some price consolidation.

QQQ weekly stock chart
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On the daily chart, we see that the sharp rally has, in just a matter of a week and a half, brought the QQQ ETF from near the lower end of its uptrending channel right back toward the upper end. The breakout past horizontal resistance near $111.20 was important, but the slope of the chart over the past week and a half begs for a retest of this breakout area.

QQQ daily chart
Click to Enlarge

Finally, on the close-up chart we see that the 7.5% rally over the past seven trading days in the QQQ ETF has left behind a trail of unfilled up-gaps. While not all gaps fill, the steeper the slope of a rally, the higher the likelihood that at least a few of the gaps get retraced.

qqq
Click to Enlarge

Active investors should now wait and see what Apple and Microsoft earnings bring, and in particular, another up-gap rally in the QQQ would offer up a high-probability setup to short the Q’s for a move back toward the $110.50 area.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/nasdaq-100-qqq-etf/.

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