American stocks have retreated in the past few months, ending the strong momentum that happened earlier this year. The closely-watched Invesco QQQ has retreated to a low of $354.10, the lowest level since June 12th.
The fund, which tracks companies in the Nasdaq 100 index, has retreated as market risks increase. There are significant recession risks, as I wrote here. China, the second-biggest economy in the world, is melting down as the real estate sector collapses.
There are also economic growth risks as UAW workers’s strike continues. Most importantly, the political division in Washington means that hopes of a government shutdown have increased.
Technically, the situation is not looking good for Invesco QQQ. As shown below, the fund has formed what looks like a double-top pattern whose neckline is at $353.81. In price action analysis, a double-top is one of the most popular bearish signs.
At the same time, the 50-day and 100-day weighted moving averages (EMA) are about to form a bearish crossover. This mini death cross points to more downside in the coming weeks.
If this happens, QQQ ETF will likely have a bearish breakout as sellers target the key support at $331.17, the highest swing on August 15th. This price is about 6.86% below the current level.
In addition to technicals, the QQQ ETF has additional risks. For one, the US dollar index (DXY) has surged to the highest level in more than six months. A stronger US dollar hits many big-tech companies that have exposure to international markets like Apple and Microsoft.
There are also valuation risks now that companies like Apple, Netflix, and Microsoft are not growing as fast.
The UltraPro Short QQQ is a leveraged fund that tends to move inversely to Invesco QQQ. As I wrote here, the fund seeks daily investment returns that correspond to three times the inverse of the daily performance of the Nasdaq 100 index.
In most periods, SQQQ does well when the Nasdaq 100 and QQQ ETF are falling. Shorting the fund generates bigger returns than placing an equal short on Invesco QQQ ETF. Similarly, it generates worse returns when the Nasdaq 100 index is in a strong bullish trend.
Therefore, with the outlook for the Nasdaq 100 index being bearish, there is a possibility that the SQQQ fund will continue rising.
While the QQQ fund has formed has formed a double-top pattern, the SQQQ fund has created a double-bottom pattern at $16.35 whose neckline was at $20.95. Therefore, there is a likelihood that the fund will continue rising as buyers target the key resistance at $25.
SQQQ chart by TradingView
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