IND - QQQ: On The Verge Of Upside Breakout (Technical Analysis)

Summary

• QQQ ETF and QQQM ETF are likely to break higher despite of the high inflation environment in 2023.
• The market price of QQQ ETF has reached a region of long-term support after a 37.41% drop in 2022.
• QQQ ETF is trading at the verge of a descending broadening wedge pattern, indicating an upward price movement.

Invesco QQQ ETF ( QQQ ) and Invesco Nasdaq 100 ETF ( QQQM ) are Exchange Traded Funds ((ETF)) designed to replicate the performance of the NASDAQ-100 Index. The QQQ ETF and the QQQM ETF enclose technology and growth-oriented companies, providing investors with exposure to the technology sector and the growth potential of the world's leading companies. Due to the broad exposure to technology and growth companies, investing in QQQ ETF and QQQM ETF is viewed as a favorable option for investors. In addition, QQQ ETF is a passively managed fund that offers investors a low-cost investment opportunity. The price of QQQ ETF has increased by 1739%, from 2008 lows of $22.03 to 2021 highs of $405.20, due to strong market performance , high demand for technology sector stocks, and favorable economic conditions. Despite a strong price increment, the market price of QQQ ETF dropped by 37.41% in 2022. The QQQ ETF downturn has reached strong long-term support, and the price's rebound from the long-term support indicates an upcoming run higher. Due to the fact that both QQQ ETF and QQQM ETF track the same underlying index, an increase in the price of QQQ ETF would likely lead to an increase in the market price of QQQM ETF. This is because the increase in the price of QQQ ETF indicates an increase in the NASDAQ-100 index's value, which would cause both ETFs' prices to increase. This article presents the market drivers and technical analysis for QQQ ETF based on the recent price structure. The price is currently breaching the strong decision number, indicating that the price is likely to increase.

Market Drivers for QQQ ETF

Since QQQ ETF is primarily driven by the performance of technology and internet-based companies such as Apple (AAPL), Amazon (AMZN), Meta (META), and Alphabet (GOOG) (GOOGL), the price is also affected by the volatility of technology-based stocks. The share price of QQQ ETF is impacted by market sentiment, economic data releases, and monetary policy decisions by central banks and geopolitical events. The most significant factor impacting the market price in 2022 is inflation , with investors focusing on the Fed's response to rising inflation. The Fed has raised interest rates above 4%, but inflation remains exceptionally high. The Consumer Price Index ((CPI)) is used to measure inflation because it measures price changes in a basket of goods and services consumed by the average household. The CPI has decreased to 6.4% from the June 2022 peak of 8.99%. In contrast, the monthly core Personal Consumption Expenditure ((PCE)) has increased to 0.296%, an annualized rate of 3.55%, as shown in the chart below. An increase in the core PCE on a monthly basis indicates that inflationary pressures have not yet been curbed. Core PCE is the Fed's preferred measure of inflation, and since core PCE inflation is still above the Fed's 2.0% target, I anticipate additional rate hikes from FED.

Inflation remains uncontrollable and is projected to remain elevated throughout 2023. The market price of QQQ ETF will be significantly impacted by rising inflation. Inflation decreases purchasing power, diminishes consumer confidence, and induces interest rates to rise. The increased interest rates make it more costly for businesses to borrow money, which decreases profitability. Consequently, inflation decreases the value of QQQ ETF. To maintain profitability and financial strength in the face of inflation, technological companies may increase prices in order to capitalize on technological advances to boost productivity and reduce costs, as well as to maintain profitability. Therefore, the higher inflation might benefit the market price of QQQ ETF.

The Emergence of Bullish Structure in QQQM

The weekly outlook for QQQ ETF is depicted on the chart below, where the price is currently bouncing off the long-term blue line. The support area is extremely significant, and the price has formed a double bottom on the support line. It has been observed that the price structure has produced a descending broadening wedge, and any breakout from $315 would be a significant breakout leading to a significant price increase. QQQ's all-time highs would be targeted by a breakout from the descending broadening wedge. The price is making lower lows and lower highs, while the trading range between the highs and lows is expanding. As the trading range continues to expand, the pattern shows increased volatility and potential for a big move. Since the pattern is regarded as bullish, the expected major movement is expected to the upside. Currently, the price is trading at the decision point and waiting for the bullish breakout.

The baseline support for QQQ ETF is depicted in the chart below. The patterns were supported by a double-top formation, and any break below $260 is regarded as a major decline in the market price of QQQ ETF. Nevertheless, the pattern is now breaking to the upside, as another bullish cross is observed on the chart and the RSI is trading above the 50-midpoint.

For a clear understanding of the breakout point, the chart below illustrates another wedge formation with a $315 target. Any breach of $315 will signal a significant breakout in QQQ ETF. Investors must exercise caution until $315 is decisively breached since this level is considered as the decision level for QQQ ETF.

While the market price of QQQ ETF is breaking higher, the correlated market QQQM ETF also shows a significant technical correlation in the chart below. When QQQ EFT produced a double bottom at $260, QQQM ETF also produced a double bottom and broke the red trendline which indicates higher prices.

Final Words

It is clear from the preceding discussion that QQQ ETF remains in a long-term uptrend. A 37.41% decline in QQQ ETF in 2022 has pushed the price to a region of long-term support. The price is bouncing off the long-term support level of $260 with bullish price patterns of a descending broadening wedge. As a result of the bullish divergence, the QQQ ETF market price is nearing the $315 decision point, and a monthly close above this number will likely trigger the next significant advance. Since $260 is the baseline support level, a breach below $260 will initiate the subsequent price decline. On the other hand, the Fed is likely to raise interest rates further in 2023 until inflation approaches the long-term target of 2%. The higher inflation increases the risk in the stock market; however, technology stocks are less likely to be affected by inflation, as companies may increase costs in order to increase profits.

In conclusion, QQQ ETF and QQQM ETF provide investors with excellent buying opportunities, and any pullback is viewed as a buying consideration. A breakout above $315 in QQQ ETF is likely to reduce market risk. Since QQQ ETF and QQQM ETF have a positive correlation, any breakout from $315 in QQQ ETF will trigger a significant rally in QQQM ETF.

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