ETF Trends
ETF Trends

The PowerShares QQQ (NasdaqGS: QQQ), commonly known as the Nasdaq 100 tracking ETF, is already up 32% this year, but the fifth-largest U.S. ETF by assets could be poised to offer more near-term upside if favorable seasonal trends kick in.

Plenty of ETFs, including sector funds tracking cyclical groups, international funds and small-cap plays, enter periods of seasonal strength in December. QQQ is no exception. [Germany ETF: A Compelling Seasonal Play]

QQQ’s “average return per period during the past 28 ‘sweet spot’ periods was 4.8 per cent. The trade was profitable 85 per cent of the time and outperformed the S&P 500 index 79 per cent of the time,” report Don and Jon Vialoux for the Globe and Mail.

The pair cite data courtesy of EquityClock.com and note that the true seasonal sweet spot for QQQ is Dec. 20 through Jan. 19.

The reasons for QQQ’s strong seasonality at this time of year extend beyond the mere potential for a Santa Claus rally. QQQ has a 57.3% weight to the technology sector and some of that chunk is allocated to semiconductor stocks. That sub-industry is also in the midst of favorable seasonality. [‘Tis the Season for Semis]

In addition, the Nasdaq, and as a result QQQ, has evolved over the years. That means a higher weight to consumer discretionary stocks, another group that historically performs well in the fourth quarter and into the first quarter of the new year. QQQ’s weight to the discretionary sector is over 20% and includes high-flying names such as Amazon (NasdaqGM: AMZN), Priceline (NasdaqGM: PCLN) and Elon Musk’s Tesla (NasdaqGM: TSLA). [Nasdaq’s Evolution Encourages New Highs]

Regarding QQQ’s nearly 13.4% weight to the health care sector, most of that is “biotech stocks that have a period of seasonal strength from Dec. 16 to Jan. 22. Average return during the past 20 periods for the biotech sector was 7%,” according to the Globe and Mail. The paper notes there are two major biotech conferences in mid-January that could act as upside catalysts for the sub-sector.

Of course, QQQ’s near- to medium-fortunes will be determined in large part by Apple (NasdaqGM: AAPL), Microsoft (NasdaqGM: MSFT) and Google (NasdaqGM: GOOG), a trio that combines for about 28% of the ETF’s weight.

PowerShares QQQ

Tom Lydon’s clients own shares of QQQ, Amazon, Apple, Google and Microsoft.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.