Next week promises fireworks with the election.

But before we get to that, there’s a round of chaos to deal with this week.

That’s because 169 of the companies in the S&P 500 are reporting earnings. That makes this the busiest week of the third-quarter earnings season.

This week includes mega-cap companies like Microsoft (MSFT), Apple (AAPL), Meta Platforms (META), Amazon (AMZN), and Alphabet (GOOG).

Those stocks alone make up 32% of the Invesco QQQ Trust, Series 1 (QQQ).

Investors and analysts alike will pore over financial results and conference calls to evaluate earnings.

But sometimes the chart will reveal all you need to know…

Warning signs are emerging in the price trend.

Instead of getting caught up in the noise, you need to watch a key pattern developing in QQQ instead…

Not Keeping Up

Mega-cap stocks are beginning to lag the S&P 500, which is weighing on other stock market sectors.

The S&P started rallying to new highs back in mid-September.

But stocks like Apple, Microsoft, Amazon, and Google aren’t keeping pace. These “Magnificent 7” members remain below the levels they reached back in July.

And given their weighting in QQQ, that fund isn’t keeping up either.

While the S&P 500 rallied to new highs, QQQ hasn’t been able to climb above its July peak.

In plain terms, mega-cap stocks aren’t keeping up.

And while they can prop up the major indexes when times are good, the opposite holds true as well.

With that in mind, let’s look at another warning signal to watch with QQQ…

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Stalling Momentum

We can see signs that price momentum is stalling out using a key indicator.

Take a look at the chart below. It plots QQQ along with the Relative Strength Index (RSI) in the bottom panel.

The RSI measures changes in underlying price momentum.

The RSI is useful to traders in a couple of different ways. It can point out overbought or oversold price levels on a chart.

But we can also use it to detect when a price trend is weakening. Those are called “momentum divergences.”

And a negative momentum divergence is developing in the chart above.

As QQQ tested the $500 level at “1” and again at “2” this month, the RSI made a lower high. You can see that with the dashed line in the RSI panel.

That’s another sign that price momentum in QQQ is stalling out.

If QQQ turns lower here, watch for a test of the 50-day moving average (the blue line in the chart).

If the 50-day doesn’t hold and the RSI falls below 50, expect more weakness ahead.

So while we can expect plenty of fireworks next week, the show may already be starting…

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

P.S. QQQ isn’t the only place I see warning signs in the market… Just last night, I shared details about a key market indicator that’s lighting up red with a recession signal.

The easy market returns of the past year may be vanishing… So I want all my readers to have a plan in place for the volatility I see around the corner.

If you missed out on last night’s event – and my chaos playbook – then I’d highly recommend checking out the replay. Not only do I explain the tensions I see building in the market… I share one of the tickers I believe could be very useful as the chaos hits.