A Technical Tool That Pinpointed The Market Leading Nasdaq 100

The stock trading for March finished on a strong note as the Invesco QQQ
QQQ
Trust (QQQ), which tracks the Nasdaq 100, will post a gain of 9.5% for the month. That was after a 0.40% decline in February but for the quarter QQQ is up almost 20%.

The S&P 500 closed March at 4109.81 and above the consensus year-end target for the year. According to Bloomberg, the average target of 22 strategists has the S&P ending this year “at 4,078 “. From their article, it was clear that at the end of December bearishness was rampant.

It was my view in mid-January that the Wall Street strategists were too negative on the market. It reminded me of 2017 when the average year-end target from the leading strategists was 2368 but instead, the S&P 500 closed almost 13% higher at 2673.

As we start a new quarter many are downplaying the first quarter strength of the QQQ as narrowly based and not necessarily a positive for the overall stock market. Some think the action is negative. Many investors are wondering what tools they could have used to identify QQQ as a market leader.

For ten years I have been discussing the benefits of relative performance analysis in my contributions to Forbes.com as well as my teaching session with investors and traders. This analysis was also a significant factor in my December warning about the bank stocks.

As a reminder, the RS is a ratio of a sector, stock, or ETF to a benchmark like the S&P 500. When it is rising the sector or stock is performing better than the S&P 500. When it is falling then the sector or stock is weaker and should be avoided.

My RS analysis starts with the daily charts as it will turn positive or negative first. The daily RS for QQQ peaked in August and was in a clear downtrend, line a, until January 2023. The resistance was overcome on January 17^th, line b.

QQQ reached the weekly starc+ band in late January and was overdue for a correction in February. The RS moved sideways and held above its WMA before resuming its uptrend in March. Based on the daily chart the next resistance is at the August 2022 high at $334.42. line c. That is 4.2% above Friday’s close at $320.93.

Once the daily RS turns positive the focus is then on weekly charts and data. The weekly downtrend in the RS, line a, goes back to the high at $408.71 in November 2022. On January 27^th, line b, the RS moved above its prior high as well as the downtrend. This was a strong sign that QQQ was now a market leader. The monthly RS for QQQ turned positive in March (see chart).

The 38.2% Fibonacci resistance of the decline from November’s 2022 high at $313.10 has been overcome which favors a move to the 50% resistance at $331.36. That is just
just
below the August 2022 high. On a strong move above this level then the next Fib target is the 61.8% resistance at $349.61. The monthly starc+ band is currently at $375.65.

Any pullback in the weekly RS is expected to hold the rising WMA but the current pattern is positive for the intermediate term. After the sharp gains of the past three weeks, a pullback is likely before Memorial Day.

As I will point out in a future technical trends article there are reliable signals from the daily RS that can alert you when an ETF or stock loses its market leadership.