A few weeks ago, we checked in on the Invesco QQQ Trust Series 1 (QQQ).
After falling heavily in 2022, QQQ finally bottomed out in October before forming a base.
However, while the broader market rallied strongly in October – with the Dow Jones Index recording its best monthly performance in 46 years – QQQ could hardly get out of the gates.
And by the end of the year, QQQ was back plugging around its yearly lows. But in 2023, QQQ started off more positively and showed signs of a promising rally.
And on February 7 (red arrow in the chart below), that upward momentum soon led QQQ to test overbought territory.
Since then, QQQ has reversed. So today, we’ll see what’s coming next…
Retracing From a Lower High
The chart of QQQ below shows a classic bear pattern in action…
QQQ made a series of lower highs in March (‘A’) and August (‘B’) – and prior to that in November 2021. Adding to the bearish sentiment, the 50-day Moving Average (MA – blue line) also trended down.
Check out QQQ’s chart…
Invesco QQQ Trust Series 1 (QQQ)
Source: eSignal
The next down legs from these lower highs got confirmation from the 10-day MA (red line) crossing below the 50-day MA.
As you can see, these down legs also coincided with the Relative Strength Index (RSI) tracking in the lower half of its band (below the green line).
After retracing from its lower high at ‘B,’ QQQ then bottomed out and formed a base (orange line) in October through November.
This coincided with the RSI forming a ‘V’ and trending higher out of oversold territory (lower grey dashed line).
After a brief rally, the RSI temporarily broke through resistance (before retracing). And QQQ closed out the year by falling and testing its October lows.
With the RSI again forming a ‘V’ and trending higher, this time QQQ’s rally this year started to gather real momentum…
This was shown by the RSI breaking through resistance and gaining traction in the upper half of its band.
Take another look…
Invesco QQQ Trust Series 1 (QQQ)
Source: eSignal
However, QQQ’s rally peaked and reversed. The RSI formed an inverse ‘V’ in overbought territory (upper grey dashed line).
Since then, the RSI has fallen lower (pulling QQQ with it) and is now tracking right along support (red circle).
And the 10-day MA is currently tracking back toward the 50-day MA – a bearish signal.
So, what can we expect from here?
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Retesting October Lows
For QQQ’s rally to regain momentum, we’ll first need to see the RSI hold support. If it can do that, and the RSI regains traction in its upper band, then QQQ could rally further from here.
For a sustained rally, we’d also want to see the 10-day MA begin to accelerate again above the 50-day MA.
The next test for any rally would then be for QQQ to take out its recent high on February 2 ($313.68).
However, I’m keeping one eye firmly fixed on the RSI…
If the RSI breaks lower through support and gets stuck in its lower band, then QQQ’s current down leg still has further to go.
The 10-day MA breaking below the 50-day MA could then see QQQ retest its October lows.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. Make sure to mark March 17 on your trading calendar…
On that day, a shockwave is going to hit the markets… and offer prepared traders a gift. Because these kinds of shockwaves are one of the best ways that I know to double your money – or more.
I want all my readers to know what to do. That’s why I’m holding a special Shockwave Summit on March 8 at 8 p.m. ET to tell you all about it.
Please plan to tune in… you can RSVP automatically right here.
Reader Mailbag
In today’s mailbag, a subscriber comments on his latest trade success with The Opportunistic Trader…
Dear Larry, what an amazing call you made on the LNG call option. I bought one contract yesterday for $2.25 per share and sold it today for $4.88 per share.
That’s $263.97 in profit or a 117.5% gain in just one day! Very nice work, team. Keep them coming please!
– Mike S.
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