A couple of weeks ago, we took a close look at the Invesco QQQ Trust Series 1 (QQQ)

After driving the wider rally that kicked off in March 2020, tech stocks felt the full brunt of the selling pressure throughout 2022. QQQ lost 33%.

Even when the Dow and S&P 500 rallied later in 2022, QQQ remained stuck in a sideways pattern and struggled to hold support…

When we last checked out QQQ (red arrow in the chart below) on January 24, it had rallied off that support level.

And it was trying to build momentum as we entered peak earnings seasons – with tech stocks like Apple (AAPL) and Amazon (AMZN) due to report.

So now, with those mixed big tech earnings behind us, I want to see what’s coming next…

Repeating Patterns with the RSI

The 50-day moving average (MA – blue line) in the chart below shows QQQ’s steady decline. That down move coincided with a series of lower highs…

Invesco QQQ Trust Series 1 (QQQ)


Source: eSignal

The lower highs in March and August (and previously in December 2021) topped out when the Relative Strength Index (RSI) reversed and subsequently broke down through support (green line).

The next down leg then developed along with two other bearish signals…

  1. The RSI remained stuck in the lower half of its band.

  2. The 10-day MA (red line) crossed down below the longer-term 50-day MA.

QQQ then bottomed out and started forming a base in October. The RSI made a ‘V’ and rallied (left red line) out of oversold territory (lower grey dashed line).

However, although the RSI broke through resistance in early November, it couldn’t get any clear air…

Take another look…

Invesco QQQ Trust Series 1 (QQQ)


Source: eSignal

Instead, the RSI bounced along support before breaking down into its lower band at the end of last year.

The previous RSI pattern then repeated – it formed a ‘V’ and rallied out of oversold territory into this year (right red line). QQQ subsequently rallied.

That rally gathered momentum when the RSI broke convincingly into its upper band…

Adding to the bullish sentiment, that strong momentum saw the 10-day MA break strongly above the 50-day MA.

However, now that the RSI is in overbought territory (upper grey dashed line), what am I looking for from here?

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Potential Short Trades

What happens next with the RSI will be key…

As the chart shows, the RSI has formed an inverse ‘V’ (red circle) from overbought territory and started to track down.

If this pattern continues and the RSI tracks back towards support, then we will likely see QQQ reverse.

And that would provide the setup for a potential short trade.

Any down move beyond that would then be dependent on the RSI breaking into the lower half of its band… and the 10-day MA falling back below the 50-day MA.

And even if we get just a short pullback out of overbought territory over the next few days – before QQQ’s rally continues – that could still provide nimble traders with plenty of opportunity to bank short-term gains.


Larry Benedict
Editor, Trading With Larry Benedict

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