To see the true impact of rising interest rates, investors need look no further than the Nasdaq index.
From the start of 2022 to its June low, the tech-heavy index lost around one-third of its value. Shareholders saw trillions of dollars of their wealth evaporate into thin air.
But when we last checked the Invesco QQQ Trust Series 1 (QQQ) on July 19 (red arrow on the chart below), its selling momentum had seen it overshoot to the downside.
Soon after, QQQ rallied off its lows and entered the early stages of a promising rally.
However, in mid-August, momentum stalled causing QQQ to roll over and head lower.
Now, QQQ is testing its yearly lows again. So today we’ll see what’s coming next for this highly watched index.
Momentum Is Changing Direction Again
The chart below shows a classic downtrend in action.
After topping out in November 2021, QQQ made a series of lower highs from ‘A’ through ‘C.’
The 50-day moving average (MA – blue line) confirmed this bearish move by trending down from mid-January to mid-July…
Invesco QQQ Trust Series 1 (QQQ)
Source: eSignal
Apart from a brief period around ‘B,’ the Relative Strength Index (RSI) has bearishly stayed in the lower half of its range (below green line) throughout this down move.
However, when the RSI formed a double ‘V’ near oversold territory (lower grey dashed line) in June, QQQ’s momentum turned and began to trend higher.
Back then, there were two key technical signals that promised an emerging rally…
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The RSI broke up through resistance into the upper half of its range.
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The 10-day MA (red line) bullishly broke back above the 50-day MA – the first time it had done so since March.
But after QQQ rallied to a higher high from ‘C’ to ‘D,’ momentum turned again… this time down.
Once the RSI formed an inverse double ‘V,’ it soon tracked right back at support. As this support failed, the RSI fell into its lower band and QQQ’s stock price tumbled.
In a month, QQQ fell 19%. Soon after, the 10-day MA crossed back below the 50-day MA – adding to the bearish sentiment.
Now the 10-day MA is accelerating below the 50-day MA, and the RSI is back in oversold territory. So, what am I looking for around here?
Holding Support Is Key
QQQ is trading back at the support level it was rallying from in June (orange line). Holding this price level is crucial for QQQ to bounce.
Over the coming weeks, I’ll also be closely watching the RSI’s action. Although QQQ is in oversold territory, there’s no guarantee it’ll bounce.
For QQQ to hold support and rally, we first need to see the RSI form a ‘V’ and track back up toward resistance. A quick, sharp move like this could provide the setup for a potential long trade.
However, if the RSI instead flatlines or meanders around oversold territory, QQQ will struggle to hold support… let alone bounce.
A break below support, with the RSI stuck in its lower range, would then set up QQQ for another leg down.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reader Mailbag
In today’s mailbag, subscribers continue to write in about their positive experiences with The S&P Trader service…
Great results on the recent SPX trade. I bought for $7.30 and sold for $57.40, in one day. My internet was out so I missed the recommendation to sell at the open (for $20). I got the notice at about 2 p.m. my time, and then sold instead at $57.40. So over $100 grand profit. Sometimes you get lucky.
– Steve H.
Larry,
I love you! I had a hell of a week! I joined The S&P Trader after placing one trade on the One Ticker Trader – and was patiently waiting for a trade. Then I saw your Quadruple Witching trade and was so happy that I could participate! I placed 10 contracts on the SPX $3,975 put.
I lucked out and was able to get into the trade at $6.71. The same situation happened on the back end, and I was able to get out of the trade at $23.40. That was a whopping $16.69 gain! My little $6,706.80 turned into $23,393.20 (up $16,686.40)! A 248.79% gain!
– Anonymous
Thank you as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].