After a brutal selloff last year, the Nasdaq has enjoyed a much better start to 2023…

From its low in early January, the Invesco QQQ Trust Series 1 (QQQ) rallied a massive 20% in less than a month.

After pulling back from February into March, QQQ then rallied to fresh highs earlier this month.

Since then, QQQ has repeatedly tried to break higher… but ran out of gas each time. Dwindling buying momentum has stunted any positive price action.

Now, heavy hitters in the Nasdaq are about to release quarterly results. So today, I want to look at what’s coming next…

Falling Momentum

On the chart below, you can see QQQ’s steady downtrend last year.

That downtrend came with a series of lower highs in April and August (and prior to that in March and January). The 50-day moving average (MA, blue line) trended down…

Invesco QQQ Trust Series 1 (QQQ)

Source: eSignal

However, QQQ began to bottom out in October. That brought an end to QQQ’s down move.

QQQ’s initial bounce in October (‘1’) coincided with the Relative Strength Index (RSI) rallying out of oversold territory (lower grey dashed line)…

That move ran out of steam, though. The RSI failed to get any traction above resistance (green line).

QQQ then retested and held support (orange line) in early November (‘2’) before trying to rally again…

Although the rally lasted longer this time, buying momentum slipped away again. The RSI fell through support, dragging QQQ lower with it.

Only when QQQ retested and held support at ‘3’ did it manage to launch a sustainable rally…

This time, the RSI broke through resistance and gained a firm footing in the upper half of its band. And QQQ rallied up to six-month highs in February at ‘A.’

Take another look:

Invesco QQQ Trust Series 1 (QQQ)

Source: eSignal

As the RSI shows, however, the strength and speed of that rally put QQQ into overbought territory (upper grey dashed line)…

QQQ then reversed as the RSI rolled over and headed back to support.

But from there, the RSI again accelerated higher in its upper range. And QQQ rallied up to its recent highs at ‘B.’

Yet, in almost a month of trading, QQQ has been unable to break through short-term resistance (upper red horizontal line)…

A steady decline in buying momentum (lower red line) has stopped QQQ from breaking higher.

So, with QQQ’s rally stalled, what am I looking for around here?

Big Week of Earnings

As you can see, the RSI is currently tracking back toward support.

And what happens here will be key…

For QQQ to resume its rally, the RSI will first need to hold support… then continue to track higher in the upper half of its range.

However, after such a massive rally this year, it will only take slightly disappointing earnings results for QQQ to come back down to Earth…

And heavy hitters like Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN) are due to report earnings this week.

From there, we’ll see if the RSI breaks down through support and the 10-day MA crosses below the 50-day MA. That could see QQQ drift further before starting a fresh leg down.

Larry Benedict
Editor, Trading With Larry Benedict

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