The largest of the Nasdaq stocks, i.e. the Nasdaq 100 as represented by the PowerShares QQQ Trust (ETF) (NASDAQ:QQQ), fell by more than 2% on Monday. Much of the financial media is pointing to shares of Facebook Inc (NASDAQ:FB) for at least some of the blame.
To wit, Facebook stock on Monday intraday at one point traded lower by almost 8%, which was more than a $40 billion drop in market value. The QQQ ETF traded weak in kind, which now begs the question whether a deeper mean-reversion move to the downside is in the cards.
Over the weekend news broke that a lobbying firm had gained access to personal information of about 40 million Americans through Facebook, which in turn may have been used in the 2016 U.S. Presidential election. Concerns are now being raised around regulation of FB and possibly other large digital advertising players.
QQQ ETF Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Stepping away from the news and looking at the price action through a multiyear lens we see that in January the QQQ ETF broke above its 2016/2017 up-trending channel as marked by the black parallels. After re-testing the lower end of this trend in February, another overshooting move took place two weeks ago. Monday’s drop once again rejected this breakout attempt.
All the while, weekly momentum as noted by the MACD oscillator at the bottom of the chart remains in record overbought territory.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, note that last week on March 13 the QQQ ETF left behind a so-called bearish outside reversal day where the index opened higher intraday, only to then quickly reverse those gains and close notably lower. This “bearish reversal” on Monday saw its follow-through selling and now has the ETF dancing right on the yellow 50-day simple moving average.
Also note that the daily MACD momentum oscillator made a lower high so far at the March highs versus its momentum highs from January.
From here, while this is still a leading growth-oriented part of the stock market, active investors and traders could look to either short the QQQ, buy an inverse ETF or buy put options or put spreads. A next downside target is the $160 area, followed by possibly $150. Any strong bullish reversal on a daily closing basis would serve as a stop loss.
Check out Anthony Mirhaydari’s Daily Market Outlook for March 20.
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