Is The NASDAQ In Need Of A Pullback?

There’s no denying the strength in the tech sector over the last few years, but more specifically, over the last 18 months. From the 2009 bottom, the NASDAQ -as measured by the $QQQ ETF – is up over 250%. Since 2013, the ETF is up over 38%. That’s a pretty hefty move for an index that just languished for over 7 years (from the dot-com crash to 2009).  However, I believe that the NASDAQ is in need of a pullback here.

The Chart

Below is a weekly chart of the $QQQ. You can clearly see the well-defined channel. We’ve been bumping up against the top part of a channel and have been registering high RSI readings for a while now. Now, this by itself is not necessarily a reason to reduce a long position or get short. But combine that with the fact that the NASDAQ is entering its worst quarter on a seasonal basis, now you have things mounting up against the bulls. Then throw in the fact that we might get a taper surprise or some unexpected comments from the FOMC, things are suddenly not looking that rosy for the bulls. Lastly add in the fact that some underlying holdings are looking kind of toppy, bulls should turn real cautious here. Now, I could be wrong. The NASDAQ could easily move higher from here. But trading is all about risk/reward. Right now, the reward is not very favorable for the bulls. This doesn’t mean the NASDAQ will crash or that it has set a top – far from it. But if you’ve been long and have exposure to the tech sector, it might be wise to hedge or take some profits. Technically, I’d expect a pullback to the lower part of the channel and/or where the 20-week moving average resides. That should reset some overbought conditions and set it up for the next leg higher (if the trends holds!).

 

$QQQ - PowerShares Nasdaq-100 Weekly Chart QQQ weekly

























Tags: $QQQ $NQ_F $COMPQ $GOOGL $YHOO $AAPL

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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