Watch the Nasdaq 100 (QQQ) For Short Term Direction: Break Out or Break Down?

The S&P 500 (SPY), profitable this year, remains stuck in its trading range near their highs. Other segments of the market such as Russell 2000 (IWM), Biotechnology (IBB), Health Care (XLV), Finance (XLF), Regional Banks (KRE), and Technology (QQQ) are strong sectors. The international sector of the market are showing gains in June showing investors are willing to invest in areas with more risk. Higher prices overseas would most likely propel the US equity market higher.

I discussed in the last newsletter 06/12/15 how a strong financial sector (XLF) would be a bullish message for the market. A new high in XLF was made with the upside target at 26.00, with support at 24.00. I also mentioned for the advance to broaden, the Nasdaq 100 (QQQ) would need to close above 112.50 for two days to confirm higher prices. This so far has not occurred and could be a warning signal.

What Are The Charts Saying Now?

Power Shares QQQ Weekly Price and Trend Channels (Top),  and RSI 14 (Middle) and Tick Volume

The top chart to is the Power Shares QQQ Trust; an exchange traded fund (ETF) representing the Nasdaq 100 Index. It includes 100 of the largest domestic and international non financial companies listed on the Nasdaq Stock market based on market capitalization. As of 6/24/15, Apple, (AAPL) is the largest holding comprising 13.97% and Microsoft Corp (MSFT) 7.09%. Both stocks peaked in late April, a good reason why the QQQ has been unable to get through the top of its weekly channel.

The Nasdaq 100 (QQQ) has challenged the upper channel three times, in November, March, and April followed by a short term pullback to an important retracement line that is acting as key support (pink line) at 109.00. Notice how in recent weeks price is further away from touching the upper channel on rally attempts. This is a bit disturbing that no breakout above the channel has taken place. For the bulls to take control of the market and a breakout to occur, the Nasdaq 100 (QQQ) needs to close above 114.00 for two days 1.50 higher than my previous target of 112.50 because the channel

The middle chart is the Relative Strength Index (RSI), a measure of momentum developed by Welles Wilder. RSI has been in a tight 10 point range since February, showing no real strength or real weakness. It would be bullish if the down from July 2014 is penetrated. See the chart above (pink line), no penetration yet. If RSI stalls here and turns down expect more weakness into July and August that potentially could be significant, sharp and fast.

The bottom chart is tick volume, an indicator that measures each price change during the trading session, along with the total number of shares traded during the period. I find it helpful for intra-day and short term trading looking for changes or continuation in trends. Many times a large tick indicates the end or beginning of a move. Notice volume is light, not attracting new buying or any real selling at this time. If volume increases, and breaks the trend line on rising prices, this would be bullish. If prices
decline and volume increases, and the trend line is broken I would interpret this as bearish.

Weekly QQQ/SPY Ratio (Top) RSI of QQQ/SPY Ratio (Bottom)

The top part of the chart is the weekly QQQ/SPY ratio. A rising line means the Nasdaq 100 is stronger. If falling, the S&P 500 is stronger. The uptrend from April 2014 remains in effect (see trendline above) rising to a new high, confirming the strength in the Nasdaq 100 (QQQ) vs. the S&P 500 (SPY), which usually bodes well for the stock market. The monthly ratio (chart not shown) is also rising and at its highs, which is bullish for the technology sector. With both weekly and monthly ratios rising I continue to expect higher prices with the QQQ ultimately breaking through the top of the weekly channel.

The lower chart is the RSI of the QQQ/SPY Ratio that has been in downtrend since September 2014 but now has turned up, breaking the downtrend, a slight penetration showing positive momentum, which is bullish for the short term, and I expect the Nasdaq 100 (QQQ) to rise further.

Just to Sum Up:

The US market is holding up well despite the threat of rising interest rates and no new deal with Greece and its international creditors to avoid default after long meetings in Brussels on 06/25/15. Additional short term volatility over the next few days could occur but I remain optimistic that the market will rise further. For the advance to broaden and a breakout to the upside to occur the Nasdaq 100 (QQQ) would have to close above 114.00 for two days. If the QQQ is unable to rise above and breaks below the lower channel at 105.00 instead, this would negate my positive outlook and I would expect a further decline that could become more serious. I would love to hear from you! Any thoughts, questions comments, feedback; please call me at 1-844-829-6229 or email at bgortler@signalert.com.

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Bonnie S. Gortler

Bonnie Gortler, a Consultant, Coach, and Author, is a Wealth & Well-Being expert with over 35 years of experience in managing multi-million-dollar client portfolios at a top-rated investment firm. As the author of Journey to Wealth, Bonnie is dedicated to teaching the importance of risk management and achieving true financial well-being by integrating both the technical and mental aspects of investing. With an M.B.A. and certification as a life coach, Bonnie combines her passion for coaching, consulting, and blogging to inspire people globally. Her powerful techniques and winning mindset help others experience personal growth and financial success. Explore wealth-building tips, personal development strategies, and more at BonnieGortler.com, and discover how you can enhance your wealth and well-being.  


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