The Invesco QQQ Trust Series 1 (QQQ) has enjoyed a strong start to 2024.
Its all-time high on March 8 (448.6) represents a 9.5% gain from the end of 2023. And it’s seen a 31.5% gain since its five-month rally began in October last year.
Yet despite its strong move, QQQ’s rally is facing several challenges.
For a start, three of its main constituents – Apple (AAPL), Tesla (TSLA), and Alphabet (GOOGL) – have not kept up this year.
And recently, we’ve seen stronger-than-expected inflation and jobs data. That will likely push out rate cuts (a big driver of this rally).
The Fed’s next interest rate decision is due out tomorrow. So let’s see where QQQ is likely heading from here…
A Strong Rally
The chart of QQQ below shows how strongly it has performed during the past 12 months.
It rallied through July 2023 (a 52% gain from its October 2022 lows). Then QQQ retraced for three months before resuming its rally in late October.
You’ll often see this pattern of “rally, consolidate, then rally again” in a strongly trending up market.
Invesco QQQ Trust Series 1 (QQQ)
Source: eSignal
As the chart shows, both rally phases coincided with two bullish technical signals:
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The 10-day Moving Average (MA, red line) crossed above the 50-day MA (blue line). Both MAs then accelerated higher.
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The Relative Strength Index (RSI) stayed in its upper band (above the green line). That showed positive buying momentum.
Compare that to QQQ’s retracement period (mid-July through to October). The RSI zigzagged between its upper and lower ranges.
The 10-day and 50-day MAs crossed each other several times in both directions during this consolidation phase too.
The latest leg of QQQ’s rally resumed when the RSI formed a ‘V’ and rallied off oversold territory (lower grey dashed line).
Despite the strength of this rally, the chart shows that there have been several minor pullbacks. Each of these coincided with the RSI retracing from overbought territory (upper grey dashed line).
Take another look:
Invesco QQQ Trust Series 1 (QQQ)
Source: eSignal
Each of these down moves petered out as the RSI hit support. QQQ then resumed its rally as the RSI bounced.
More recently, though, the RSI has been making lower highs (lower orange line) while QQQ has been tracking higher (upper orange line).
This diverging pattern often precedes a reversal.
So with the RSI once again testing support (red circle), what am I looking for around here?
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A Reversal from the Peak
I’m not expecting a rate cut announcement at the Fed’s meeting. I’ve been saying rate cuts won’t come until the second half of 2024 since last year.
So the real focus will be how the market reacts to Fed chair Powell’s comments about the interest rate decision.
And what happens around the RSI support/resistance level will be key.
If the RSI falls through support and gains traction in its lower band, then QQQ’s reversal from its March 8 peak will have further to go.
The longer the RSI stays in its lower band, then the bigger that fall could be.
The other thing to keep watch on is our two MAs. QQQ’s recent pullback has pulled the 10-day MA lower (and closer) to the 50-day MA.
The 10-day MA accelerating below the 50-day MA would add further weight to any emerging down move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict