Rotation was the tale of the tape on Tuesday. And no one benefited from the switcheroo more than the technology sector, which had previously been lagging.
Indeed, tech stocks across the board powered higher driving the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) up 1.26% by day’s end. Traders looking for QQQ to continue playing catch-up have a variety of avenues for capitalizing.
But first, let’s chronicle the recent action in the Nasdaq ETF’s price chart. Since the end of summer, QQQ has been in base-building mode. The trading range, characterized by sharp rips and dips, is frustrating bulls and bears alike with its inability to follow through.
I wouldn’t fault you for thinking the relative weakness hounding tech stocks since the election was a cause for throwing your lot in with bears. But then Tuesday happened.
The rousing rotation into this once scorned sector delivered a breakout. And with that, the rally succeeded where so many of its predecessors failed. Yesterday’s $120.46 close makes the range departure official. While it would have been even better if the QQQ ETF had closed at the high of the trading session, the late-day profit taking was insufficient in reversing the breakout.
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Further buttressing the bullish case for tech stocks was the heavy volume accompanying the surge. So-called accumulation days like Tuesday signal institutions joining the fray.
And the best, most lasting breakouts are almost always led by the big boys. Absent a curve-ball thrown by Federal Reserve Board Chair Janet Yellen during today’s Fed announcement, the market winds should favor QQQ bulls into year-end.
Bet on Tech Stock Bulls
If you think tech stocks have the mustard to squeeze higher through the end of the month, consider buying QQQ call spreads.
The Jan $120/$123 bull call spread should do the trick. Buy to open the Jan $120 call while selling to open the Jan $123 call for a net debit of $1.36. The max risk is limited to the initial $1.36 debit and will be lost if the fund sits below $120 at expiration.
The max reward is capped at $1.64, and will be captured if QQQ sits above $123 at expiration. By risking $136 to capture $164 you have the potential to score an impressive 120% return.
As of this writing, Tyler Craig held bullish positions on QQQ.
