What's Wrong with the QQQ?

05/30/2014 7:00 am EST

Focus: ETFs

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

Although the Nasdaq 100 has not participated in the regular run-ups to all-time highs by the other indices, it doesn’t mean that you should avoid it, says Greg Harmon of Dragonfly Capital.

The Nasdaq 100 ETF (QQQ), has in many regards been the laggard index since the tech bubble and crash 14 years ago. Where the S&P 500 (SPY), Russell 2000 (IWM), and Dow Industrials (DIA) have all made new all-time highs, the QQQ still has a long way to go to make a new high. But just because it has lagged does not mean it is a place to avoid investing. Take a technical look.

chart
Click to Enlarge

First the potential. The weekly chart above shows the break of the red consolidation zone in 2013 and a run to the February highs. But the recent pullback measures on a AB=CD pattern to about 113. The other indicators of the chart above show a rising RSI and a MACD about to cross up. These support more upside and create a buy signal. But lets look a bit closer. The correction period preceding the last leg higher is nearly identical in both duration and magnitude to the one completed six weeks ago.

chart
Click to Enlarge

And with the price action now retesting the prior top, a push higher is a buyable trigger. Are you ready to hop on board?

By Greg Harmon of Dragonfly Capital

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