The PowerShares QQQ (NasdaqGM: QQQ), the Nasdaq-100 (NDQ) tracking ETF, is trading slightly lower Tuesday but the ETF commonly known as the “Q’s” has been on a torrid pace of late, surging 4.8% over the past three months. That is nearly 10 times the returns offered by the S&P 500 over the same period.
QQQ, home to nearly $41 billion in assets under management making it one of the largest ETFs listed in the U.S., faces a slew of marquee earnings tests this week and those reports could chart the fund’s near-term course.
Google (NasdaqGS: GOOG) really got the ball rolling last week, adding a whopping $60 billion in market value last Friday after the company’s after-market Thursday earnings report. Both classes of Google (NasdaqGS: GOOGL) shares combine for almost 8% of QQQ’s, which is to say the stock is not nearly as important to the ETF’s price action as is Apple (NasdaqGS: AAPL).
The iPhone maker, which reports after the close today, is almost 14.2% of QQQ’s weight, by far the ETF’s largest holding. Analysts are expecting California-based Apple to post earnings of $1.89 per share on sales of $49.2 billion, up from $1.40 per share on revenue of $37.4 billion last year. http://www.etftrends.com/2015/07/ahead-of-earnings-some-apple-etfs-see-outflows/
Microsoft (NasdaqGS: MSFT), QQQ’s second-largest holding at a weight of almost 7.1%, also reports after the close today. For those that don’t like math, at least 21.1% of QQQ’s weight is delivering earnings updates after the bell Tuesday. High-flying Amazon (NasdaqGS: AMZN), QQQ’s third-largest holding at a weight of 4.2%, reports Thursday.
With so many marquee QQQ holdings set to imminently enter the earnings confessional, the Nasdaq could be the target of professional traders seeking out a mean-reversion trade.
“Given that both Apple Inc. (AAPL) and Microsoft (MSFT) report earnings after the close today (AAPL + MSFT = 21% of NDX) the appetite for a reversal is much higher here than in a commodity or currency. By that we mean professionals want earnings to disappoint and some validation that the current narrow leadership in large capitalization technology stocks is a negative signal for the broader markets,” said Rareview Macro Founder Neil Azous in a note out Tuesday. http://rareviewmacro.com/
Azous notes that bullish action by Apple and Microsoft post earnings could rain on the Nasdaq mean-reversion trade, forcing those that put that trade on to once again be long.
QQQ has some other earnings ammunition to throw at those that dare short it: Biotech. Celgene (NasdaqGS: CELG) and Biogen (NasdaqGS: BIIB), QQQ’s third- and fourth-largest healthcare holdings, respectively, report Thursday and Friday. Those stocks combine nearly 4% of QQQ’s weight. The ETF has a 15.6% healthcare weight overall. [An ETF for new Nasdaq Highs]
PowerShares QQQ
Tom Lydon’s clients own shares of Apple, Microsoft and QQQ.