After a choppy January, the Nasdaq-100 — as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) — rallied significantly the past two months to bring the QQQ ETF within 5% of its highs.
On March 18, I offered in this column that while the QQQ is overbought and faces a plethora of technical resistance, for quicker trend-following traders, it does not pay to lean the other way until such time that a bearish reversal rears its head.
Indeed, the forces at work have continued to hold the Nasdaq-100 afloat since then without any notable selling pressure. Now, last Friday’s rally has the QQQ within about 1.5% of filling its Jan. 4 dow-gap that ultimately led to the big selloff.
A refresher look at the Nasdaq-100 reveals that after an already steep rise from 2009 to 2013, the QQQ began breaking higher, distancing itself from the broader uptrend. Such increases in the slope of the line rarely end well, and indeed last August’s selling pressure quickly mean-reverted the ETF back to the lower end of the multiyear channel.
While we saw a quick snapback higher from there, the QQQ largely still is trading in a volatile fashion, with upside momentum having stalled in late 2013. From this perspective, the QQQ remains better sold than chased higher.
But no analysis is complete without considering multiple time frames.
A look at the daily chart shows that we remain in a second V-shaped recovery in the QQQ since last August. From a momentum perspective, as measured by the MACD momentum oscillator, the Nasdaq 100 is now nearly as overbought as it was last November when it began to stall out. But the QQQ last week also managed to push past confluence resistance made up of both its 100- and 200-day simple moving averages, which now looks to target the top of the Jan. 4 down-gap near the $112 area.
I realize this is just another 1.5% higher from last Friday’s close, but I highlight this because a) quicker traders may use this as a next upside target and b) more tactical active investors could either use said target to slip into marginal short positions or watch how the QQQ reacts once this upside target is filled.
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