After 2022’s horror show, tech investors are watching this reporting season closer than normal…
Stocks like Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) are all due to release their results over the next couple of weeks (MSFT’s numbers are due out today).
Big tech was the engine that drove the huge rally following March 2020. But it also felt the full brunt of the huge selling last year…
By the end of 2022, the Invesco QQQ Trust Series 1 (QQQ) had lost 33% for the year.
Even when the Dow Jones Index and S&P 500 rallied 14% and 8%, respectively, last October, QQQ only rallied 4% before rolling over and heading down.
Now, with QQQ still struggling to build any upwards momentum, I’m going to check out what’s in store from here…
When Buying Momentum Dwindles
The chart below shows QQQ’s massive sell-off last year…
Apart from QQQ’s counter-rally in August (C), the 50-day moving average (MA – blue line) strongly trended down all year.
And in a classic bear pattern, QQQ also made a series of lower highs at A, B, and C…
Invesco QQQ Trust Series 1 (QQQ)
Source: e-Signal
And notice the action of the Relative Strength Index (RSI)…
Apart from peaks at A, B, and C, where the RSI bullishly broke into the upper half of its band (above the green line), the RSI tracked mostly in the lower half of its range throughout QQQ’s down move.
QQQ’s fall from its most recent major peak at ‘C’ coincided with two key technical signals…
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The RSI formed an inverse ‘V’ from overbought territory (upper grey dashed line).
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The 10-day MA (red line) confirmed that down move when it crossed down below the 50-day MA.
As the chart shows, QQQ was only then able to start building support (orange line) when the RSI formed a double ‘V’ from oversold territory in October. And from there, it slowly started to track higher (red line).
Take another look…
Invesco QQQ Trust Series 1 (QQQ)
Source: e-Signal
When we looked at QQQ on December 12 (red arrow), we saw how the RSI had broken back into the upper half of its range and showed some initial promising signs.
But for QQQ to get some clear air and rally, the RSI would need to remain there…
However, buying momentum soon dried up, sending the RSI back into its lower half. And QQQ dropped back down to its support level.
So now, with the RSI again breaking higher, what am I looking for around here?
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QQQ Needs Firm Footing
For QQQ to regain momentum, the RSI will first need to gain a firm footing in the upper half of its range…
The longer it can stay there, then the longer any potential rally will be. The next test would then be for QQQ to take out its December high ($297).
Any rally beyond that would depend on the 10-day MA crossing back above the 50-day MA and accelerating higher.
However, the action of the RSI will be key…
Should the RSI again fail to gain a solid footing in its upper band (as happened in November through December), then QQQ’s current rally will likely run out of steam…
The RSI then breaking down through its support could see QQQ also retesting its key support level.
A break below that would then likely be the start of another leg down.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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