Is it time to step up and buy stocks after two straight days of steep declines? Specifically, should investors pile into the powerful PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ), which boasts tremendous gains over the past few years? The QQQ is loaded with noteworthy tech stocks, like Apple Inc (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and FANG — Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
That knife can cut both ways though, as many of these big-time tech names have been under intense selling pressure. Overall though, the QQQ ETF is full of high-quality, high-growth stocks.
Breaking Down the QQQ ETF
The top 10 holdings in the QQQ ETF make up about 55% of the total fund. In that sense, investors are basically staking their investment’s performance on these ten names. Now, the other 45% plays a role too. But largely speaking, these top stocks are the market movers; they are the ones that set the tone.
If they’re doing well, it’s likely many of the other ETF’s holdings are doing well too. If the top 10 is lagging, the rest of the fund likely is too. Below are the top holdings, which shows what percentage of the fund is made comprised of each stock. Let’s see the breakdown:
- Apple – 11.7% of the QQQ.
- Amazon – 9.3%
- Microsoft – 9.2%
- Facebook (A shares) – 5.4%
- Alphabet (C shares) – 4.9%
- Alphabet (A shares) – 4.2% (essentially Alphabet makes up 9.1% of the QQQ ETF).
- Intel Corporation (NASDAQ:INTC) – 2.9%
- Cisco Systems, Inc. (NASDAQ:CSCO) – 2.8%
- Comcast Corporation (NASDAQ:CMCSA) – 2.2%
- Nvidia Corporation (NASDAQ:NVDA) – 1.9%
The fact that Apple makes up almost 12% of the fund is a good thing in my mind. It’s cheap, returns a ton of cash and has very solid growth in both earnings and revenue. AAPL stock has been tanking too, which spells obvious trouble for the QQQ. However, I think this recent decline could lead to a great buying opportunity.
Notably missing from the top 10? Netflix, which has had a robust start to 2018. Even with the stock’s most recent pullback, shares are still up more than 50% this year. (Don’t worry, NFLX is currently #11 with 1.76% of holdings.)
One last group to note: Biotech. If names like Celgene Corporation (NASDAQ:CELG) and Gilead Sciences, Inc. (NASDAQ:GILD) can post a substantial rebound, that will give a noticeable boost to the QQQ ETF this year.
Trading the QQQ Chart
Looking at the QQQ chart, its price action has taken a nasty, albeit hopeful turn for the bears.
However, there are still several trends that can keep bulls optimistic. Here’s what we’re looking at:
Click to Enlarge
As you’ll notice, the QQQ ETF has rather swiftly fallen below both the 50-day and 100-day moving averages. The 50-day has been reasonable support, while the 100-day has only been tested once — once! — in the last 12 months. That was in February, where it held as support.
With a recent close of $158.51, the QQQ is very close to trend-line support (black line). That level should act as support going forward. If it doesn’t hold, look for a test of the 200-day moving average. That level is about 4% below current prices and more than likely will be good for a bounce at the very least.
The bottom line: If you’re bullish on stocks, then the QQQ ETF is one you want to consider owning. But also keep in mind how far and fast the market has rallied. It’s not surprising to see some profit-taking and selling pressure. But as long as the is still economy intact (it is) then the stock market should continue to do well too.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did held a position in AAPL, NVDA and CELG.
