The Stock: PowerShares QQQ Trust ETF
Recent price: $46.67 (U.S.)
Trend: If the stock market is truly heading south in the months ahead, technology stocks are giving little evidence of a more hopeful ending to 2010. Along with much of the market, tech stocks are turning Stock Trends Bearish in a steady stream. A survey of stock price trends of the biggest tech names shows that investors are not feeling particularly optimistic about the investment climate for this important sector - a sector that reflects investors' core optimism about returns on capital and the economic signals promoting capital expenditures.
Among the big capitalization members of the sector spilling into the Stock Trends Bearish category recently is IBM - a stock that has been uninspired in a flat trend through 2010, although its recent price performance looks rosier next to that of the broad market. However, a Stock Trends Bearish indicator delivers a signal that trend-following investors' patience has run thin - the intermediate-term price trend line has dropped below the long-term primary trend line, a proverbial white towel for technical traders who chart these markers. Big Blue was categorized as Stock Trends Bullish in May, 2009, at $101 (U.S.), and was profiled here last November when its shares traded at $122. Although it scaled to a high of more than $134 at the beginning of this year, the trade advised earlier has expired.
Other big cap tech stocks are also looking blue. Shares of Microsoft Corp. have rallied in July, but trend line resistance will put a cap at the stock's current level for this Stock Trends Bearish entry. Intel will be joining the bearish stable this week, in company with Google, Cisco, Qualcomm and Oracle. The notable tech stallion still Stock Trends Bullish is investor darling Apple. But even with an impressive 19 per cent weighting in the Nasdaq 100 index, the broadest market index with a considerable tech barometer, Apple's market outperforming shares cannot deny the bearish trend signals now flashing in the group.
The Trade: Although there are specific industry-focused exchange traded funds reflecting this bearish trend in the technology sector, the PowerShares QQQ Trust is a good way to trade big cap tech stocks. This exchange traded fund replicates the Nasdaq 100 index, which is heavily weighted in information technology stocks. It is among the most liquid issues traded in North America, with an average of 730,000 weekly transactions, and is the focus of much technical trading, both directly and in its derivative instruments. Along with the underlying index, the QQQ is a current Stock Trends Bearish Crossover, a lagging "sell" indicator and final punctuation on the fund's 60 weeks in a bullish category.
The Upside: Investors interested in trading a downtrend in the QQQ have different instruments to consider, although each implies different risk exposure. Inverse trading ETFs include the ProShares Short QQQ and the leveraged ProShares UltraShort QQQ. An immediate retreat by the QQQ from its current level to below $42, a support level the fund recovered from in July, would equate to 10 to 20 per cent short-term return, depending on the leverage. A serious trip in Apple's stock helps the cause.
The Downside: If the QQQ's July rally persists early this month and clears the June high of $47.68, this trade may have a brief history.
Skot Kortje