Technology (QQQ) Still Hanging on for the Longer Term

The bears took control in October generating pessimism reaching extreme levels. This helped spark a rally in early November as the bulls showed up in holiday spirit purchasing stocks at bargain prices.  However, uncertainty of a possible trade war with U.S and China and concerns over rising interest rates has created a roller coaster ride in recent trading sessions.  The Federal Reserve met and implied a rate hike in December, but only one more increase in 2019 instead of three. This news sparked the best week since December 2011 with the S&P 500 up 4.9% and the Nasdaq 5.6% from Nov. 23-30.

However, on 12/4 the major averages sold off sharply and erased more than half of the gains achieved from 11/23-12/3 gains. Nonetheless, no new technical damage was done.  It’s disappointing the rally was short-lived.  However, the jury is out if 12/4 was the final shakeout where investors threw in the towel, just wanting to get out, or more time is needed for the bottoming process to be complete.  In my opinion, large up and down swings are normal when the market is trying to form a bottom.  After a decline where momentum indicators get into a very oversold condition on a short-term basis, base building is needed before a sustainable advance could occur.   For now, the long-term uptrend is intact, and the bull market remains in effect.

Where do we go from here?

Figure: PowerShares QQQ (Nasdaq 100 Index) Month Price and Trend Channels (top), and the 12-26-9- Month MACD (bottom)

The top part chart shows the monthly PowerShares (QQQ), an exchange-traded fund based on the Nasdaq 100 Index, (*** See below for the top five holdings.)  and two trendlines (purple and orange line) that are acting as key support.

The long-term uptrend remains in effect from March 2009 unless the QQQ closes below 120.00.

Technology since 2009 has been one of the strongest sectors of the stock market throughout the bull market. The QQQ peaked at 187.53 this past October. There was a minor intra-week penetration in August 2015 (see red circle) but the QQQ immediately went back above the trendline. Several times in 2016 the QQQ touched the uptrend line, but then turned up.  The same is true so far in 2018, the QQQ fell to the uptrend line during the most recent decline and turned up in November.

December historically is a favorable month.  If the QQQ rises in December without penetrating the uptrend line to the downside, the odds favor another test of the old highs.  Resistance is 171.00 followed by 176.00.  On the other hand, if the QQQ doesn’t hold and turns down closing the month below support at 157.00, slightly under the recent low, it’s likely the selling pressure would increase quickly and the QQQ will not test the old highs in the near term. The next support is at 148.00.

The bottom half of the chart is MACD (12, 26, 9), a technical indicator that measures momentum.  It’s positive the MACD uptrend from 2009 is intact (orange line).   The first MACD sell has been generated, which was not taken as MACD implied underlying strength when it made a higher high in September.  With MACD in an uptrend, most times its best to wait for a second sell signal to occur.  Therefore, when MACD gives its next sell, this is the one you want to make sure that you follow.

Summing Up

The long-term trend remains up for technology based on price. However, there is a clear decrease in momentum.  Past strength suggests another rise in the QQQ is likely.  Its positive the short and intermediate term momentum patterns are in position for a short-term rally to begin at any time once the bottoming process is complete.  The challenge is for a move that can be sustained for several weeks, not hours or for only a few days. Longer-term momentum patterns in the QQQ suggest a tradeable rally is likely before a significant decline will occur.  The QQQ closed above the first key level of support at 157.00.  The long-term trend remains positive unless the QQQ closes below 120.00 (this number will rise each month).  It’s unlikely with MACD confirming the high that the QQQ made a final market top.  A bumpy ride over the next several weeks remains possible as the bottoming process continues.  However, for now, the bulls and bears are battling.  With our U.S. Equity model on a buy and a favorable seasonal period upon us I expect higher prices ahead. Below are three investment tips for your peace of mind.

3 Investment Tips for Peace of Mind During These Turbulent Times

1. Review your investments to see if any individual stock, exchange-traded fund, or bond position exceeds 5% of your overall portfolio. These will be the ones that could have the most impact.
2. Don’t be overweight in one sector that is out of favor or losing relative strength compared to the S&P 500 index (SPY).
3. Create an investment plan to know in advance how much risk that you are willing to take, that you have an exit strategy which suits your comfort level and allows you to sleep peacefully at night.

Drop me a line! I’d love to hear from you. Please call me at 516-829-6444 or email at bgortler@signalert.com to share your thoughts or ask me any questions you might have.

*** The QQQ includes 104 of the largest domestic and international nonfinancial companies listed on the Nasdaq.  As of 12/4/18, the top holdings are Apple, (AAPL) 10.96%, Amazon.com, Inc. (AMZN) 10.62%, Microsoft Corp (MSFT) 10.55%, Alphabet Inc. (GOOG) 4.75%, Facebook, Inc. (FB) 4.18%, and Alphabet Inc. (GOOGL), 4.10% totaling 41.06%. (Source: https://etfdb.com/etf/QQQ/

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******Article published in Systems and Forecasts by Bonnie Gortler  December  5, 2018

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Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

Bonnie S. Gortler

Bonnie Gortler, Consultant, Coach, and Author specializing in Wealth and Well-Being, is a successful stock market expert who has been instrumental in managing multi-million-dollar client portfolios within a top-rated investment firm during her over 35-year corporate career. As the author of “Journey to Wealth,” Bonnie has made it her mission to share the importance of risk management and how to enjoy real financial well-being by applying the technical and mental sides of investing. Bonnie has an M.B.A. and is a certified life coach. It is through her love of coaching, consulting, blogging, and social media that she creates change in the lives of many and inspires people from around the world. Bonnie is fully committed to your personal growth and development as she shares her winning spirit and powerful techniques with you. Visit BonnieGortler.com to gain tips and insights about investing, personal development, and inspiration through her articles on Wealth and Well-Being.
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