The PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech-heavy Nasdaq-100 Index, is mostly flat over the past week, but some technical analysts believe the popular exchange traded fund could face some near-term headwinds.
Stocks such as Apple (NASDAQ: AAPL), Google parent Alphabet Inc. (NASDAQ: GOOG), Facebook Inc. (NASDAQ: FB) and Microsoft Corp. (NASDAQ: MSFT) are pivotal to QQQ’s performance. That quartet combines for over 35% of QQQ’s roster.
Last week, 52% of Nasdaq-100 Index (NDX) stocks hit a new 52-week high,” according to Schaeffer’s Investment Research. “There have been just two other times in history when more than half of NDX components notched an annual peak in one week, and both signals preceded short-term pullbacks for the index.”
Overall, QQQ allocates about 60% of its weight to technology stocks. However, consumer discretionary is the ETF’s second-largest sector weight at 22.1%, putting QQQ in a prime position to benefit from the online shopping boom.
The retail sector has been under pressure on the rise of e-commerce outlets, like Amazon.com. Meanwhile, traditional brick-and-mortar stores are shutting down, with the threat of bankruptcy for smaller players, dragging on the broader retail segment.
Bearish traders can prepare for a possible decline in the Nasdaq-100 with the ProShares UltraShort QQQ (NYSEARCA: QID). QID attempts to provide double the daily inverse returns of the Nasdaq-100 Index.
“One and two weeks after both signals, the NDX was in the red. On average, the index was down 1.42% one week later. So far this week, the Nasdaq-100 is down 0.5%. Two weeks after the signals, the NDX was down 1.39%, on average. For comparison, the tech-rich index has averaged anytime one- and two-week gains of 0.14% and 0.27%, respectively, since 2000, with win rates above 50%,” according to Schaeffer’s.
Over the past 90 days, investors have added about $908 million to QQQ, good for the best inflows tally among all PowerShares ETFs.
For more news and strategy on the Technology market, visit our Technology category.
Tom Lydon’s clients own shares of QQQ, Apple, Facebook and Microsoft.