2023-03-24 12:27:29 ET
Summary
- It is my belief we're going a lot higher in 2023.
- While we have short-term issues to work through, this bull market is already well underway.
- ProShares UltraPro QQQ ETF can provide capital-efficient exposure to a bull market in growth names.
So far in 2023, we’ve seen the landscape change enormously for investors. Interest rates have been all over the place, we’ve had bank runs, inflation remains an issue, and fears of recession are a popular thing to talk about. But through it all, we’ve rallied.
Back in January, I said we would have a bull market in 2023, and I recommended the ProShares UltraPro QQQ ETF ( TQQQ ) as a way to gain exposure. You can read about the fund here , and I covered it in the linked article. Essentially, it’s a way to gain 3X daily return exposure to the QQQ ETF.
Seeking Alpha
The S&P 500 (SP500) is roughly flat since then, but TQQQ is 20% higher. That’s not shabby for a two-month period, but I think there’s more to be had. Do we have some potential issues short term? Yes, but those can be dealt with and then we’re going a lot higher, in my opinion.
Near-term issues, long-term raging bull market
That header really sums up my position on U.S. equities right now; we have some technical challenges to face, but all the conditions are there for a huge rally this year. On that, I have not altered my opinion since I last covered this topic in January, and indeed, I’ve been telling subscribers all year to position for more risk-taking.
Let’s start with the TQQQ chart.
I’ve marked potential price resistance on the chart, which is just overhead. That’s a short-term issue, as the Nasdaq/QQQ/TQQQ are overbought right now. That’s okay, and being overbought is bull market behavior. Short-term, it means we could be susceptible to some selling pressure, but it is my view this selling pressure – if it even happens – is a chance to load up before the next leg higher.
The 20-day exponential moving average (in red above) is one of my favorite support levels to use during bull runs, and with TQQQ, it’s just under $24 right now. If we get near $24 on TQQQ, it’s a screaming buy.
The accumulation/distribution line is very strong, and that’s because Wall Street has been accumulating exposure to growth names all throughout 2023 – more on this below. TQQQ is one of the best ways I can think of to take advantage of this, and it’s responsible in no small part for the 20% gain TQQQ has produced in the past two months.
The PPO looks great, as does the 14-day RSI, but both are showing negative divergences. This is when a momentum indicator makes a lower high than the previous relative high in the price of the security. In this case, TQQQ is testing its relative high of ~$27, but the momentum indicators are nowhere near their highs. That is because bullish momentum is waning, but these are short-term issues. It’s why I said above we have the potential to move down a few percent before resuming the bull run. This in no way changes my longer-term bull thesis, but it is an issue for the coming days, and potentially a couple of weeks.
Now, anyone that follows my work knows I love to use inter-market relationships to guide the way, and in the case of TQQQ, it is inextricably linked to a few other financial instruments. First, we all know rates have been a hot topic for some time now, and their impact on growth names is indisputable. Let’s take a look at the 10-year Treasury to get us going.
We can see a lower relative high that was set in March (blue down trending line), and that support for yield is just below current yield. Do we get a bounce in yield here? Maybe. It’s not quite oversold, but it’s a long way from being overbought, so we may get some profit-taking for those that have bought bonds in recent weeks. In my view, any bounce in yield is going to be short-lived, and I believe rates are going lower this year based on the price action I see above. This chart of 10-year yield has all the characteristics of an asset that has seen a top, and is going lower.
I mentioned above that Wall Street has been accumulating exposure to growth names, and there is perhaps no way to illustrate this better than with the QQQ to SPY ratio. This essentially tracks the Nasdaq’s performance to the S&P 500, and it’s really quite incredible.
This is a year-to-date chart, so it’s less than three months of data, but QQQ has outperformed SPY by 13% so far this year. I think there’s more on the table here for the balance of 2023, for the reasons I mentioned above, and that’s why I want exposure to the Nasdaq. A very capital-efficient way to do that is to own TQQQ.
Apart from pure technicals, if we’re making broad market calls, sentiment matters. The best sentiment indicator I know of is the put-to-call ratio, which I’ve plotted below. This is a daily chart of the CPCE, but I’ve removed daily price points and replaced it with the 250-day simple moving average. That means we’ve got the rolling 1-year average of put-to-call ratios from the CBOE, which smooths out short-term noise.
This chart shows two decades’ worth of CPCE data, and I’ve put a chart of the S&P 500 price below for reference. I’ve placed a line at the current level of this value, which is 0.71, which shows the only time in the past 20 years this value was meaningfully higher than now was during the Great Recession. There are tons of fear-mongers that will tell you 2023 is the new Great Recession, but I simply don’t see it. Wall Street doesn’t, either, or they wouldn’t be bidding up growth stocks aggressively.
Now, the prior three peaks on the CPCE were 2009, 2012, and 2016. I drew vertical lines to correspond to those peaks for reference on the S&P 500’s price. Look at the price action following the peaks in the CPCE; universally, unbelievably bullish. I think we’re in the same spot right now, and I think we’re going much, much higher than where we are today.
Considering the risks
In case it wasn’t clear, I’m very bullish the U.S. stock market and I’m positioned accordingly. We have some short-term issues from the QQQ/Nasdaq being overbought, but this is bull market behavior. I believe it is indicative of a coming rally, as are the other indicators we looked at above. But there are risks, of course.
One risk to TQQQ is that interest rates do, in fact, make a bottom here and move higher again. Given inflation data has looked better and better continuously for several months now, I don’t see that as a reasonable possibility. But could inflation reignite interest rates? It’s possible, and if it happens, TQQQ’s bull case gets much more difficult to make.
GDP could come in weak for the first couple of quarters this year, indicating a recession. It is my belief a recession was priced into equities last year, but if GDP falls more quickly than expected, growth names may get repriced lower. It is worth remembering stocks bottom well in advance of any economic data providing investors the "all-clear," so I wouldn’t wait around for that. But again, economic news is always a risk.
Is it worth owning exposure to growth through instruments like TQQQ today? Unequivocally, yes. It is my belief we have already made the bottom and we have a strong rally ahead. During bull markets, instruments like TQQQ will outperform, and it has done so this year, with more to come.
My view is that the bull market of 2023 has been confirmed, and if you want a ticket on that train, TQQQ is a great way to get it.
For further details see:
2023 Bull Market Confirmed: Buy TQQQ (Technical Analysis)