The Nasdaq-100 — as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) — has been a shining star in 2015 among what otherwise has been a rubble of mediocrity.
Much of this relative and absolute outperformance by the QQQ ETF came on the strength of a handful of large-cap Internet stocks that people love — and that investors probably will be forced to chase higher into year’s end given the otherwise difficult year it has been for stocks.
While my base case remains that we will see some sort of Santa Claus rally into year’s end, 2015 will likely at best go down as a flat year for the broader stock market and a transition year into what looks to shape up to be an even more challenging 2016. But if we just stare at the major indices — many of which are market-capitalization-weighted — we only get half the picture.
Nowhere is this more so the case than the Nasdaq-100, where the top four stocks make up roughly 30% of the entire index.
As it stands, the QQQ ETF is giggling green to the tune of 11.8% for the year-to-date. Much of these gains are attributed to just a few heavily weighted components such as Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB). In comparison, the S&P 500 is up just shy of 3% on the year while small capitalization stocks as represented by the Russell 2000 are down about 2% on the year.
QQQ ETF Charts
Looking at the QQQ ETF through a multiyear lens, we see that courtesy of the latest rally off the August lows, the fund is once again right near the upper line of resistance. If we squint, however, some more upside looks to be had until this line of resistance really makes things difficult.
On the daily time-frame, we see that the sharp October-early November rally has paused and consolidated in recent weeks. This consolidation phase is also roughly taking place around the summer highs and thus right at a defined horizontal line of resistance.
The longer the QQQ can consolidate and coil up around this line of resistance, the better the odds of a clean break higher that could lift the index into year-end and early 2016.
Looked at through the lens of investor psychology, given the difficult year for equities, many fund managers still are underperforming their respective benchmarks and will continue to be forced to chase higher the few stocks that have worked all year.
Active investors could look to buy the QQQ ETF around the $115 area for a move toward the $122 area while respecting any sharp bearish reversal.
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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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