The PowerShares QQQ (NasdaqGS: QQQ), the so-called Nasdaq 100 ETF, has already surged more than 33% this year.
Asking for much more near-term upside may border on being greedy, but that is exactly what is likely to materialize if the Nasdaq 100 (NDX) can crack some significant technical resistance.
The Nasdaq 100, home to the 100 largest non-financial companies listed on the Nasdaq, “is attempting to break from a clean rising channel. At the same time this is taking place momentum is strong and reaching levels seldom seen in the past 10 years plus,” writes Chris Kimble of Kimble Charting Solutions.
The Nasdaq 100 has been in an upward channel dating back to 2001, the time of part of the index’s plunge after the bursting of the tech bubble.
While the Nasdaq Composite has reclaimed the 4,000, NDX has not resided there since 2001. Still, QQQ has performed well this year and that is with very little help from Apple (NasdaqGM: AAPL), the ETF’s largest holding. The iPad maker is up just 3% this year and accounted for 13% of QQQ’s weight as of the first week of December.
QQQ has, however, benefited from the Nasdaq 100’s increased exposure to consumer discretionary names compared to the days leading up to the tech bubble. On the Nasdaq, consumer discretionary stocks include high-flying story stocks such as Amazon (NadaqGM: AMZN), Netflix (NasdaqGM: NFLX) and Tesla (NasdaqGM: TSLA).
The Nasdaq also sports an easier-to-digest valuation today than it did in the days leading up to the bursting of the tech bubble. The Nasdaq is far cheaper today than it was in the late 1990s or earlier this century. When the bubble was at its biggest, the index had a price-to-earnings ratio of 194 compared to under 24 today. [Nasdaq’s Evolution Could Encourage New Highs]
QQQ had a P/E of 18.6 at the end of third quarter, according to PowerShares data. The First Trust NASDAQ-100 Ex-Technology Sector Index Fund (NasdaqGS: QQXT), which excludes technology stocks in favor of higher weights to discretionary and health care, had a P/E of 23.2 at the end of November. [Take the Nasdaq, Leave the Tech]
Tom Lydon’s clients own shares of Apple and QQQ.