PowerShares QQQ Trust ETF Series 1 (QQQ) - Get Report is ending May under downward pressure. At the open on May 31, QQQ tested its 200-day simple moving average at $174.31. Failure to hold this moving average indicates risk to its annual and semiannual value levels at $169.27 and $167.53, where QQQ should be bought. (QQQ closed down 1.60% on Friday to $173.95.)
This popular trading ETF has a negative weekly chart after beginning May as an "inflating parabolic bubble." This was a clear warning to "sell in May and go away."
Factors to Consider:
The PowerShares QQQ represents the Nasdaq 100, which is having its first negative performance in May since 2012.
President Trump indicated late Thursday that the U.S. will begin imposing tariffs for Mexican goods beginning at 5% on June 10. Tariffs will be bumped higher each month by 5% up to 25% in September until Mexico reduces or eliminates illegal aliens from crossing into the U.S. at the southern border.
In a "flight to safety" investors are buying U.S. Treasuries. When stocks were peaking in the fourth quarter of 2018 the yield on the 10-Year Note peaked at 3.25%. As May comes to an end, the yield has traded as low as 2.15%.
The Daily Chart for QQQs
Courtesy of Refinitiv XENITH
QQQ set its all-time intraday high of $191.32 on May 1, and at its 200-day simple moving average at $174.31 is down 8.9% year to date. Even so, it's still up 21.5% from its Dec. 24 intraday low of $143.45. Its year-to-date gain has been cut to 13%. At the Dec. 24 low I predicted that a bear market rally would begin. The close of $154.26 on Dec. 31 was an important input into my proprietary analytics and semiannual and annual pivots remain at $167.53 and $169.27, respectively. A trend below the 200-day simple moving average at $174.31 targets these pivots which are the buy levels on weakness.
The Weekly Chart for QQQs
Courtesy of Refinitiv XENITH
The weekly chart for QQQ is negative with the ETF below its five-week modified moving average at $181.08. QQQ is well above its 200-week simple moving average or "reversion to the mean" at $141.04. The 12x3x3 weekly slow stochastic reading is projected to end this week falling to 65.15 down from 78.41 on May 24. Note that when QQQ set its high on May 1 this reading was 96.64 making the ETF in an "inflating parabolic bubble" which was a warning to "sell in May and go away."
Trading Strategy: Buy weakness to its annual and semiannual pivots at $169.27 and $167.53, respectively. Short-term traders can buy at the 200-day simple moving average at $174.31.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The close on May 31 will determine the monthly level for June. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.