ETF Trends
ETF Trends

Investors should be monitoring the NASDAQ Composite, NASDAQ-100 and related exchange traded funds as the tech-heavy Nasdaq recently made new highs but is showing signs of backing off those record levels.

The PowerShares QQQ (NasdaqGM: QQQ) is tracks the widely followed NASDAQ-100, an index that is home to tech and Internet darlings such as Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB) and more. The First Trust NASDAQ-100 Equal Weighted Index Fund (NasdaqGS: QQEW) is the equal-weight answer to the popular QQQ.

Impressive earnings reports have recently helped lift the technology sector and ETFs such as QQQ. Historically, after a profit falloff, the technology sector has been among the best areas in a rebound. Another catalyst is the tech sector’s status as a cyclical sector. Cyclical groups historically perform well as interest rates rise.

However, there are some technical issues on the NASDAQ investors need to monitor.

“Take Thursday’s dramatic reversal lower in the stock market, for example. Specifically, the NASDAQ was well into new all-time high ground at one point during the day,” according to ETF Daily News. “However, by the end of the day, the index has lost all of its gains and then some, closing well into negative territory. Upon a glance at the day’s bar or candlestick on its chart, one might understandably be concerned about residual negative consequences stemming from the day’s action.”

None of QQEW’s holdings account for more than 1.2% of the ETF’s weight and the fund’s combined exposure to Amazon, Apple and Facebook is barely more than 3%.

Home to nearly $473 million in assets under management, QQEW holds 107 stocks and tracks the NASDAQ-100 Equal Weighted Index. The ETF turns 11 years old later this month.

Year-to-date, investors have added nearly $270 million in new assets to QQQ. Just four PowerShares ETFs have seen larger 2017 inflows.

“A historical look at these types of reversals yields some fodder for both bulls and bears. Perhaps most importantly, though, it fails to confirm the widely accepted notion that yesterday’s type of action is a reliable predictor of further trouble in the market, despite the ugly candlestick and its scary-sounding descriptions,” according to ETF Daily News.

For more information on the tech sector, visit our technology category.

Tom Lydon’s clients own shares of AAPL, AMZN, FB and QQQ.