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Invesco QQQ Trust Is in for a Very Volatile April as Earnings Season Looms

Invesco QQQ Trust (NASDAQ:QQQ) stock, an exchange-traded fund (ETF) that tracks the Nasdaq-100 Index. The index is made up of the largest non-financial companies listed on the Nasdaq Stock Exchange based on market capitalization. It’s up more than 68% in the last year, but year-to-date, the index is down about 2%. That’s where QQQ stock comes in.

keyboard featuring etf on enter key. vangaurd etfs

Source: Shutterstock

QQQ’s opened for trading in March, 1999. Today annual expense ratio stands at about 0.20% and supports a dividend yield of 0.6%.

QQQ’s 52-week price range has been $177.95 – $338.19, and it hit a record high on Feb. 16 from which it since has retreated. It trades today around $316, up nearly 7% year-to-date.

As an index-tracker fund, returns on QQQ stock are almost identical to the stellar returns of the Nasdaq-100 seen over the past 12 months. Therefore, many analysts wonder if the fund could be in bubble territory.

Trailing P/E and P/B ratios stand at 40.67 and 8.66, respectively. QQQ stock is expensive from a historical valuation, and further profit-taking is likely in the second quarter.

However, strong positive momentum will return leading to share price appreciation in the long-run. Let’s take a closer look.

QQQ  Is One of the Most Traded ETFs

As of the end of 2020, QQQ is the second most traded ETF in the U.S. based on average daily volume traded. As it holds all the stocks in Nasdaq-100, QQQ stock provides exposure to some of the most significant trends in society, especially in technology.

The firms included in the index cover a broad range of industries, such as consumer electronics, e-commerce,  online entertainment, disruptive technologies (such as cloud, artificial intelligence, or the internet of things), biotechnology, as well as food and beverage.

Put another way, although it has significant tech exposure, it is not just a tech fund. In the past year, QQQ stock became a top choice among retail investors who saw it as an appropriate ETF to benefit from the “stay-at-home and work-from-home” trend.

The fund’s top five holdings are Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA), and Facebook (NASDAQ:FB). They comprise close to 40% of assets under management of well over $150 billion.

Other notable stocks include Google’s parent company Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Nvidia (NASDAQ:NVDA), PayPal (NASDAQ:PYPL), Adobe (NASDAQ:ADBE), Intel (NASDAQ:INTC),  Cisco Systems (NASDAQ:CSCO), Netflix (NASDAQ:NFLX), Broadcom (NASDAQ:AVGO), Starbucks (NASDAQ:SBUX), PepsiCo (NASDAQ:PEP), Intuitive Surgical (NASDAQ:ISRG), and JD.com (NASDAQ:JD).

In 2021, there has been a rotation from tech into cyclical sectors and value shares. As a result, QQQ stock has come under pressure, and in March it has been moving mostly sideways.

In the short-run, I do not yet expect the fund to make a new leg up. We’re about to enter a busy earnings season, meaning choppiness in broader markets will likely increase.

Given the spectacular run-up in the price of many shares that make up QQQ, there could even be further profit-taking in these darlings of Wall Street.

Are you an investor who pays attention to technical charts? You might be interested to know that QQQ could decline toward $300 in the coming weeks. If the support around $300 does not hold, then a further fall toward $280 is likely.

The Bottom Line on QQQ Stock

The third round of stimulus checks has meant a recent injection of cash into the equity market. Anecdotal evidence suggests younger people are possibly putting at least some of that money into stocks.

One of the most favorite ETFs to benefit from the inflow has been QQQ, which is home to some of the best-known companies. I also find the fund to be a solid choice for most retail investors.

However, April means the start of a new earnings season. Therefore, I expect the fund to come under further pressure in the new month.

Short-term technicals do not currently support a significant up move, but timing the market is difficult even for most professional traders. Therefore, interested buy-and-hold investors could consider buying QQQ stock around $300 or even below.

Finally, experienced investors might also consider more sophisticated options strategies. Because of the heightened volatility, call and put option premiums are expensive.

For instance, a covered call strategy could enable current investors in QQQ stock to generate income on their holdings. They might also consider another ETF, namely the Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD).

On the date of publication, Tezcan Gecgil is both long and short GOOG and FB stock.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

Article printed from InvestorPlace Media, https://investorplace.com/2021/03/qqq-stock-volatile-april-earnings-season/.

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