Another look at the Invesco QQQ Trust Series 1 ETF
Last week in this space, my co-managing editor brought to light the trendlines to watch for the exchange-traded fund (ETF) Invesco QQQ Trust Series 1 (QQQ). With QQQ suffering three daily drops of 2% or more in the last seven trading days, these trendlines are worth a quick revisit, this time with an options-centric focus.
QQQ's 500-day moving average was highlighted as the trendline that would cushion the tech selloff that's plagued markets in the last 12 months. After all, it stepped up as admirable support on two earlier occasions back in March. Yet on Tuesday, April 26, this trendline was breached on a closing basis for the first time since April 2020.
At the time of this breach, that 500-day trendline roughly coincided with QQQ's $325 level. Per Schaeffer's Senior Market Strategist Chris Prybal, peak put open interest (using all expirations) exists in August at this strike. In front-month May contracts, the peak put strike is the round-number $300 level. For reference, QQQ hasn’t traded below $300 since March 2021. But with QQQ last seen at $318.49 and the added "round number" psychological significance, prudent investors should keep an eye on potential delta hedging as we enter a new month.
Another level Prybal called out on Monday was $320. In the last two months, per the chart above, $320 was staunch support, and was set to have its faith tested amid the thick of the tech sector earnings reports this week and next. Sure enough, at the close on Tuesday, QQQ closed below $320, which coincides with a -20% year-to-date level.
We are currently mired in the second-worst start for the QQQ since 2001, when the tech ETF took a 40% haircut and bottomed at that level. Per Prybal's chart below, -20% triggered frenetic rallies back in 2008 and more recently, 2020. Those floors were hit in March and proved to be quite the bounce in the subsequent year. We all know what was happening in 2008 and 2020. There are similar twitchy macro events Wall Street is currently working through now. However the inflation, Russia, and Covid storylines pan out for the rest of 2022, QQQ's building quite the compelling technical setup that will be fascinating to watch unfold.
Subscribers to Chart of the Week received this commentary on Sunday, May 1.