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A Tale of Two Tapes
A busy week of Mega Cap earnings lifted the QQQ and continued to mask weak internals under the hood.
While I typically like to look at the Nasdaq Composite for market analysis, the way the indexes are so heavily weighted towards a select few Mega Cap stocks, it makes more sense lately to look at multiple ETF’s to really see what is going on.
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Let's start by looking at the QQQ, which is the Nasdaq 100, and is made up of the 100 largest companies listed on the Nasdaq exchange.
The QQQ started its current rally on January 6th, when it had its first follow-through day. The market had a broad-based advance during January, with many stocks participating, as shown by the net highs indicator. In February, the QQQ experienced a pullback of about 9%, but it found support right at the 50 and 200 day moving averages. The buy switch never turned off, and the 50 day crossed the 200 day, leading to another leg higher. The QQQ has since moved higher and is currently sitting near the highs of this rally.
Now let's switch to the QQQJ, which consists of the next 100 largest companies of the Nasdaq. In January, the QQQJ had a similar move higher as we saw broad-based advance. However, when we get to February, the pullback was much steeper, coming in at over 12%, compared to the QQQ’s 9% drop. This turned off the Market Navigator buy switch and triggered a circuit breaker, signaling it was time to limit exposure.
From there, the QQQJ had a new follow-through day towards the end of March, but it has been weak and continues to find resistance right at the 50-day moving average. The lack of participation in this latest rally attempt is evident by the net lows. While the QQQ was rallying led by Mega Caps, the QQQJ and most other stocks haven’t been able to get anything going.
Despite the lack of stock participation, it doesn't mean that it can't change quickly. You should still be updating your watchlists and keeping track of stocks showing relative strength. In the video below I analyze some key stocks I will be watching closely.
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The content presented is for informational and educational purposes only. Nothing contained in this newsletter should be construed as financial advice or a recommendation to buy or sell any security. Please do your own due diligence or contact a licensed financial advisor as participating in the financial markets involves risk.