The Curious Case of the QQQ’s

• Posted by Greg Harmon
• on August 5th, 2011

The week to date has been devastating for the major index ETF’s the S&P 500 SPDR (ticker: $SPY) the Russell 2000 iShares (ticker: $IWM) and the Powershares QQQ Trust (ticker:$QQQ). But there is something interesting going on. All three charts are below on a weekly timeframe. Notice that they all jumped higher in mid 2010 from the base at the flat Simple Moving Averages (SMA) in mid 2010. All also fell into a range for over 6 months. The $SPY between 126 and 136.50, the $IWM between 77 and 86, and the $QQQ between 53.50 and 60, before the fell below this week. Wait a minute, the $QQQ is still in that range. What is going on?

S&P 500 SPDR, $SPY

Russell 2000 iShares, $IWM

Powershares QQQ Trust, $QQQ

There is clearly a view from these charts that there is further risk to the downside, and I wrote about that in specifics for the $SPY recently here. The $QQQ are a bit of an enigma though. They reached a 10 year high just last week. They are not out of their Bollinger bands yet and have not broken their consolidation channel. The technical indicators do point to more downside but it is at support levels. Perhaps the key is in the composition. The top 10 holdings which account for almost 54% of the index consist of recent market leaders like Apple ($AAPL), Google ($GOOG) and Amazon ($AMZN) which together compose almost 24% of the ETF. But the top 10 holdings also include not so hot names like Microsoft ($MSFT), Oracle ($ORCL), Intel ($INTC) and Cisco Systems ($CSCO) together accounting for just under 23% of the ETF. The market leaders have been the last stocks to start moving lower. If these leaders do stop the fall and reverse then the $QQQ will hold up and that may just keep the $SPY and $IWM from falling much further into calamity ranges. On the other hand a capitulation by $AAPL, $GOOG and $AMZN could indicate that there is much wrong and plenty of downside remaining. The charts favor the latter, but then the market does what ever it wants to do. As it decides I will be watching these stocks as a barometer of what may happen not only to the $QQQ but the broad market in general.

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