DataTrader: Bull Market Pullbacks in the PowerShares QQQ

One of the stronger equity indexes since the market made its low in early October has been the Nasdaq 100. Compared to the S&P 500, Russell 2000, Dow industrials and even the Nasdaq Composite, the Nasdaq 100 – tracking ETF, PowerShares QQQ Trust ETF (QQQ) – is the only one to have made it back into bull market territory. Basis the QQQ, the index climbed back above its 200-day moving average in mid-October, and has remained above that level in the days and weeks since.

Heading into the final trading day of the week, however, the QQQ is once again trading at levels from which it has historically attracted buyers and been able to make short term gains. A two-day pullback in mid-October, shortly after the ETF returned to bull market territory, resulted in back-to-back closes in oversold territory and a subsequent rally of more than 2% in two days.

Continued choppy trading in the QQQ has provided only more opportunities for short term traders to take advantage of brief retreats in the fund as buyers and sellers alternately took profits and new long positions over a three-week period.

Current weakness in the QQQ can be tracked in part to stocks like Apple (AAPL), which represents a substantial fraction of the ETF’s holdings. Shares of Apple have closed lower for two days in a row, finishing in oversold territory for the first time in three weeks on Thursday. Note that the last time shares of Apple finished at similar levels, the stock was higher by more than 3% both one day and one week later.

Also among the fund’s larger holdings is Cisco Systems (CSCO), which soared by more than 5% after a sharp one-day pullback on Wednesday. Shares of CSCO have been trading in bull market territory since mid-October and are now at their highest levels since the first few months of 2011.

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David Penn is Editor in Chief of