Keep an eye on QQQ's 40-month moving average
Subscribers to Chart of the Week received this commentary on Sunday, April 9.
If you watched March Madness at all this year, you came away with two takeaways. First, the UConn Huskies are the best program in college basketball. Second, the Invesco QQQ Trust Series 1 (QQQ) is spending a whole lot of money on ads. As ‘the official ETF of the NCAA,’ viewers were inundated with commercials about ‘becoming an agent of innovation,’ and a ‘fund that gives you access to Nasdaq-100 Index (NDX) innovations.’ It’s great that QQQ is getting eyeballs from March Madness, and the partnership with the NCAA is albeit corny, still a win for financial literacy. But given that a whole host of people are now looking into QQQ, what does its technical backdrop look like?
The tech ETF is up 18% in 2023, last seen at $315.92. That’s a far cry from the 12-month high of $356.78 achieved approximately one year ago of this writing, on April 6, 2022. While QQQ remains down 12.5% year-over-year, considering the Oct. 13 lows of $254.26, many are speculating if the rotation out of Big Tech has begun to wind down, especially considering the Fed’s public intentions of easing off its hawkish policies entering the summer months.
Back in July, when we last covered the tech ETF, QQQ’s 40-month moving average stepped up as support, as it did in 2015-2016, 2019, and 2020. The trendline was finally breached – along with that all important, round-number $300 level – in September. Last week that trendline was reclaimed, thanks to a 9.3% pop in the month of March. But as Schaeffer’s V.P. of Research Todd Salamone noted earlier this week, most of QQQ’s big March gains occurred after March 15. In his provided hourly chart below, you can see QQQ retesting its February close – the horizontal line – in the days prior to the Ides of March. Once this resistance was toppled, the tech ETF was off to the races.
You would think the inherent investor optimism drawn from the Fed meeting on March 21-22 aided and abetted the breakout, but QQQ actually turned in a 0.2% loss in that two-day period. And since the calendar turned to April, QQQ is off by 1.8%, stalling at the +20% year-to-date level. All of this is to say that don’t be surprised if the tech ETF pulls off an Adama Sanogo-esque pump fake in the coming months.
Put traders remain active and involved. QQQ's 10-day put/call volume ratio of 1.46 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the 86th percentile of its annual range, implying a healthier-than usual appetite for long puts of late. Earlier in the week, that ratio sat above 1.50, so it will be interesting to monitor how distant the ratio gets from that peak.
Per Schaeffer’s Senior Market Strategist Chris Prybal, QQQ put open interest of 7.92 million contracts heavily outweighs the call open interest buildup of 4.58 million, both of which are near Covid high-levels from March 2020. With all these options bears lining up and macro conditions churning, the technical areas identified above will be important markers to monitor in the spring and summer.