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Last week I wrote about the range the SPDR S&P 500 ETF (NYSE: SPY) has been in over the last few months. That got me to looking at other ETFs that have been around for a long time.
When I first started in the investment publishing business in 2000, the Nasdaq 100 Trust was one of the hottest trading vehicles around. The Nasdaq was the hottest index, and people were just discovering that what’s now called the PowerShares QQQ Trust (NASDAQ: QQQ) was the easiest way to trade the index.
The “cubes ETF” opened for trading on Jan. 4, 1999, at a price of $42.98. Within the next 15 months it hit an all-time high of $110.82 in March 2000. Think about that: This is an ETF that represents an index and it gained 157% in just over 15 months. That just goes to show you how powerful the bull market was in the late 1990s.
Unfortunately, that $110.82 high would hold as the all-time high for 15 years. The QQQ just recently eclipsed that price after falling as low as $18.17 in October 2002. That goes to show how sharp and deep the bear market was in the early 2000s.
With the QQQ recently breaking its all-time high, I thought it would be a good time to look at its investment outlook. That monthly chart above gives me cause for concern, with the monthly stochastic readings being in overbought territory for the better part of the last 5 ½ years.
Looking at the weekly chart, it also gives me reason for concern, with the 10-week RSI just recently breaking below the 50-level for only the third time in the last 2 ½ years. The two previous times the indicator breached the 50 level, it also breached the 40 level. That suggests to me that we could see a further dip in the QQQ over the coming weeks.
You can also see how the slow stochastics are barely out of overbought territory. I took note of the fact that the fund has only approached its 52-week moving average one time in the last 2 ½ years.
Finally, let’s look at the daily chart. Like the SPY that we looked at last week, the QQQ has also been range-bound over the last few months, with the upper band around the $111 area and the bottom band in the $107 range. The range isn’t as clean as the one we saw on the SPY, but it is worth noting that the QQQ dropped below the $107 level in yesterday’s chaotic trading.
Personally, I am approaching the market with caution right now, with certain sentiment indicators suggesting the market is overly loved right now. And with all of the uncertainty surrounding Greece, I think the caution is warranted.
If you own the QQQ, I would suggest taking some profits off the table by closing part of your position. If you don’t own the QQQ but would like to buy it in the future, I would look at trying to get in when it approaches the 52-week moving average. But I would also watch closely to see how it behaves when it gets there.
Finally, if we see the 13-week moving average drop below the 52-week moving average, that will be a full blown red flag for me that we are entering the next bearish phase.
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