Power Shares QQQ

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PowerShares QQQ Trust (NASDAQ: QQQ)

An old adage goes to the effect of “If you want me to tell you about an investment tell me about the time frame we are looking at”. When it comes to the Power Share QQQ ETF nothing could be truer. As a passive UIT, QQQ replicates or aims to replicate the NASDAQ-100 Index. The ETF focusus heavily on companies in the technology sector to the exclusion of financial firms. This has the advantage of riding the current wave of technology successes. However, this can leave the stock exposed in the event of a tech crash.  The ETF is very efficient and mere pennies wide.

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The “Cubes”

It is commonly known by its ticker or nickname, the “cubes”. To the casual investor clicking on the 1 year to 5 year historical charts the ETF looks like a very healthy bet indeed with a steady increase over the recent years. However, click on the max timeframe button and cast your eyes back to the 2000 to 2002 period and the results paint a very different picture indeed.  Firstly, we can see the disaster that befell the EFT in the early days of the new millennium. Secondly, we see that the stock is set to regain old ground which will trigger some alarms.

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Rather than an immaculate continuing uptrend, 2000 to 2002 for most tech stocks was a disaster. The Qs succumbed to the dot bomb along with a decline in technology expenditure. By November 21, 2008 the stock had run from $120 to an intra-day low of $25.05. As stated what is of great interest is the fact that the markets are currently regaining that same high of the previous time period. So what will happen next?

Low cost trades, higher leverage

It is apparent however, that the market still has some room to move before hitting the previous high. So there are some good opportunities to ride the present uptrend. At least for a while. There is some speculation as to a major imminent push in the big four namely SPY, DIA, IWM and QQQ. According to Sundial Capital Research investors pulled money out of the big stock ETFs in April for what might be a sign of a rally ahead. As pointed out by Viktor Reklaitis of Market Watch on other occasions where the “monthly outflow totaled more than about $15 billion” the SPY went higher.

Final Thoughts

So what would be a good strategy going forward? While the tech sector is strong continued plays in the four big ETF’s will be a must for retail investors. But at what time should the investors be cautious? The old resistance lines apply for this product. Investors need to be mindful of the previous highs despite the potential for a breakout and new highs. May of 2012, 13 and 14 showed spike ups. This May the increased activity was less pronounced over other years, however, the stock was true to form in its patterns. The ETF should in theory respond in the near future in a similar manner to other sibling ETF’s.

 

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