Market Rally Broadens

We analyze the QQQ and look under the hood.

Overview

  • The market had a quiet but steady week, as it trended higher into the holiday weekend.

  • The small stocks have rallied for a second week, suggesting a broadening rally.

  • The rally in the QQQ continued, but it is trapped in a triangular wedge.

Key Question

The QQQ is trapped in a triangular formation, against a flat resistance around previous highs.  How will this pattern evolve?  We examine the possibilities.

Performance Snapshot

The market continued its uptrend, with small stocks taking the lead (VTWO, VB), a recovery in the NASDAQ (ONEQ), and technology (QQQ).  The MTD numbers show where the selling was: NASDAQ and technology.  As we suggested last week, technology seems to have found a bottom, the broadening of the rally may be setting the stage for a breakout, though overhead resistance remains.

Trend Direction from Leveraged ETFs

Our sensitive bull-bear leverage ETF indicator had turned positive last Friday, and this week’s action has put it firmly in bullish territory.  We expect the uptrend to continue until reversed.

QQQ Review

We plan a deep dive into the QQQ stocks.  First, the trend spectrum or market breadth still shows the effects of the selling in May, with the short, medium, and intermediate-term breadth still in need of repair.  The very short-term picture is getting stronger, whereas the long-term breadth has declined a bit. The chart is still positive on balance.

We ranked the stocks in QQQ on composite return, short-term trend strength, and long-term trend strength.  First, we show the 12 strongest stocks in the QQQ in terms of return and composite trend strength.

Next, we show stocks that have seen the strongest (and weakest) over the past two weeks. There is a north-south divide in the chart. Stocks in the upper half have surged recently, whereas those in the lower half have been unpopular. The recent strength or weakness could have occurred in the context of long-term up or downtrends, which you can assess using the x-axis.

Next, we analyze the stocks with the best and the worst long-term trend strength.  There is an east-west divide in the chart.  Stocks in the upper right quadrant have strong trend strength.  Stocks in the upper left quadrant have improving short-term trend strength.  Stocks in the lower right quadrant have weakened in the long term.  Stocks in the lower-left quadrant are generally among the weakest in the index.

The QQQ index is trapped in a triangular formation, and we await a breakout from the formation.

QQQ is trapped in an ascending triangle, with a rising supporting trendline and strong overhead resistance. QQQ has been moving sideways since February. Chart courtesy NinjaTrader.

We go out on a limb and try to project a time window for the breakout and price targets for the upside. Naturally, if the market breaks the lower trendline then the analysis will have been proven incorrect, so let us wait to see what happens.

Check Out our Tools on ChandeIndicators.com

We have put up new tools on the website.  We rank hundreds of stocks and ETFs using some of the indicators discussed in the NinjaTrader platform presentation.  You can look through the Stock Finder and ETF Finder tables for trading and investing opportunities. 

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Check out my article on target-date portfolios on Seeking Alpha.

Wrap-up

If you like to do your own research, my posts should give you a good starting point, with context and suggestions. You can visit my website, chandeindicators.com, for more information and ideas. I hope you will stay tuned and help, by subscribing and recommending it to your friends and colleagues.

Thank you for spending some time with me.

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Disclaimer

And now for some housekeeping. This publication is for “edutainment”, education, information, and entertainment purposes only. It is not to be construed as investment advice. Past performance is not necessarily indicative of future results. Our disclaimer at chandeindicators.com is included herein by reference.