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Is the QQQ Out of the Penalty Box? 

Image: Is the QQQ Out of the Penalty Box? 
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Tuesday, 12 Dec 2017 06:27 AM Current | Bio | Archive

I thought it made sense to follow up on an article that was written in June.

Then I wrote a piece entitled “The QQQ Flash Crash From Friday That No One Is Talking About." That Friday was June 9 and almost six months have passed.

What have we learned now over the last six months?

On June 9, QQQ volume was 104,765,166 shares. The following Monday June 12th, QQQ volume was 101,009,505 shares. That Monday was also a day that saw weakness and the QQQ drop -0.54%. Since those two days in June, weak days on the QQQ are seeing volume that has remained heavy, above 50 million shares, with prices dropping in all but two cases.

So there have now been a total of 15 trading days since June 9 where QQQ trading was greater than 50 million shares. Only two of those days, June 30 and October 27 that saw positive closes. Of these, only October 27 was really a breakout day. The conclusion is obvious. On weak days sellers are emerging in force.

From the June 8 close, the day before the QQQ Flash Crash, the QQQ is higher by 7.75%. These statistics show us that a great deal of pain has yet to be felt from investors in the QQQ though recently they got a scare. The QQQ has yet to have a pullback of -10% which is normal corrective behavior in a bull market for the QQQ.

The last correction of more than -5% on a close over close basis was -5.07% that happened from June 8, 2017 through July 6, 2017. The QQQ immediately bounced after that drop.

So we are due and the action the last month has been a warning of a possible correction of at least another -5% pullback or a possible drop of -10%. What makes us confident of the downside possibility besides the “shot across the bow” on June 9?

First, when tracking the NASDAQ 100, we find that 23% of the stocks have a strong technical rank as defined by Erlanger Research, Inc. The Erlanger Technical Rank has ten ranks from 10% to 100% in 10% increments. So 23% of the names in the NASDAQ 100, are ranked between 60% and 100%.

Meanwhile, 64% are ranked between 40% and 10%. So the distribution on weak days for the QQQ still makes sense as many more names are technically weak.

Second, there is poor seasonality on QQQ from January 1st through a low on February 8 before seasonal strength takes over until a peak on June 2nd.

Third, many portfolio managers were scared by the poor action from November 29 through December 1. So the next time QQQ names start to see weakness those portfolio managers may decide to sell even earlier.

We noted in July, we remained cautious and would look at positioning of the NASDAQ 100 in early August if a sudden move begins to the upside or downside. That has yet to occur so we thought it made sense to weigh in with a QQQ update.

We hope you appreciate the update.

Geoff Garbacz is the co-founder and one of two principals in Quantitative Partners, Inc. (QPI). Geoff and his team at Quantitative Partners have over 36 years of experience on Wall Street. Prior to the formation of QPI in 1995, Geoff worked for The Robinson Humphrey Company from 1990 to 1995.

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We noted in July, we remained cautious and would look at positioning of the NASDAQ 100 in early August if a sudden move begins to the upside or downside. That has yet to occur so we thought it made sense to weigh in with a QQQ update.
qqq, penalty, box, investors
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2017-27-12
Tuesday, 12 Dec 2017 06:27 AM
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