QQQ bulls faced channel resistance a month ago but defended channel support of different duration. They are, however, facing headwinds of waning momentum.
The bull-bear tug of war continues on QQQ (Invesco QQQ Trust). On July 25, bulls were rejected at six-month channel resistance (Chart 1). There have been subtle signs of fatigue since. Year-to-date, the Nasdaq 100 index (7371.42) is still way ahead of its major US peers. It is up 15.2 percent, versus 10.6 percent for the Russell 2000 small cap index, 6.9 percent for the S&P 500 large cap index and 4.2 percent for the Dow Industrials. The tech-heavy Nasdaq 100/QQQ has been a reliable go-to sector for a while. But of late they are lacking the kind of momentum they showed previously.
With that said, bulls have not stopped defending support. Late July-early August, bids persistently showed up at the 50-day moving average, followed by defense of near-term support last week at $178 on QQQ ($179.70). This also approximates a rising trend line from early April. Hence its significance. Odds favor a breach soon. On the weekly chart, the MACD is on the verge of a potentially bearish cross-under. Once this support goes, QQQ likely comes under decent selling pressure.
In this scenario, as much as the bulls would cherish one, short squeeze does not look probable – at least not yet. At the end of July, QQQ short interest jumped 31.2 percent period-over-period to 70.1 million shares. This was the highest since 84.6 million mid-February (arrow in Chart 2). Late January-early February this year, US stocks, including QQQ, came under severe pressure. The ETF bottomed on February 9. Shorts lent a big helping hand in the rally that followed, as they got squeezed big time. By the end of May, short interest fell to 47.8 million. Once again, it is building up. This is an opportunity for the bulls if they can force a squeeze. But, as previously mentioned, it increasingly looks like they are running out of ammo right here and now. What the rather elevated short interest can do is not let selling get out of hand, as shorts get tempted to lock in profit.
