Courtesy of John Nyaradi.
With less than two hours of trading left, Tech ETFs and the Dow are hissing loudly. Is this the beginning of a new bubble bath or the 13,000 deaths of the Dow?
At 1:10 PM EST the NASDAQ 100 rests at 2984.45 with a .08% decline, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) rests at 64.67 with a .05% decrease, while the Technology SPDR ETF rests at 29.05 with a .1%. Both the NASDAQ:QQQ and the NYSEARCA:XLK track indexes related to technology, and it appears that after a fun filled yesterday with Apple’s (NASDAQ:AAPL) iPad 3 announcement, tech ETFs are correcting today. However, with such a fast start this morning from the tech sector, and with such a meteoric rise in the tech sector since the onset of 2012, one might begin to wonder if the tech sector bubble at large is beginning to hiss. A look at the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) chart below could give us some clues to the potential tech bubble burst:
courtesy of stockcharts.com
By looking at the chart above of the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ), the ETF which directly tracks the performance of the NASDAQ 100 Composite, one can see the near straight line up for the fund since the beginning of 2012. One can also see that the blue 50 Day Moving Average line crossed the Red 50 Day Moving Average line back at the beginning of December, indicating a “golden cross” or buy signal. As once can see, a buy was a good move as the two moving average lines are still way too far away to cross each other as we near the end of February.
Since the moving averages are not even close to crossing in the opposite direction, in which the red 200 day moving average crosses over the blue 50 day moving average which would indicate a “death cross” or sell siganal, one may wonder if the NASDAQ 100 or the NYSEARCA:QQQ ETF growth is close to popping. Indicators like the RSI and MACD, however, tell a slightly different story.
The MACD (blue bars at bottom of chart) currently reads -.010, which indicates that the fund’s momentum has slowed down, and could switch into a positive direction. Although this is certainly possible, it is evident that right now the MACD is flat, at least compared to the large swings seen back in November. So if anything, the MACD for NASDAQ:QQQ is flat and will likely be flat for some time.
Flat is ok so long as flat does not crash, however the RSI (top of chart) says otherwise. As one can see, the RSI currently reads 75.94, which indicates a way overbought stock. If this indicator pushes above the “70″ mark, the ETF is overbought and if it pushes under the “30″ mark, the ETF is oversold. So, the RSI for NASDAQ:QQQ has been overbought for the entire month of February, which would suggest on a normal day that the NASDAQ:QQQ is about to sell off.
As of 1:28 PM EST, the Dow Jones Industrial Average stands at 12992.97 with a .09% decline, while the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) rests at 129.72 with a .11% decline. Looking at the chart below of NYSEARCA:DIA might shed some light on the question of whether the DJIA and its ETF will die 13,000 deaths or rise to 13,000 victories:
chart courtesy of stockcharts.com
The above chart of the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), the ETF which directly tracks the performance of the DJIA, paints a similair picture as NASDAQ:QQQ. The bulls have been in control since December as indicated by the near vertical rise and moving averages.
However, As I mentioned in yesterday’s Tech Talk, the MACD momentum indicator is just flirting with the “0″ mark, which indicates that again, the DJIA is flat. The RSI also continues to flirt with the “70″ overbought mark, which also indicates that the market is flat, and if it does push above 70, NYSEARCA:DIA will become overbought as well. So, despite yesterday’s epic (not so epic) punch through to 13,000, today’s market performance suggests that the bulls have yet to mount a serious enough offensive to rise the DJIA and NYSEARCA:DIA above the ceiling becuase of too much resistance.
Bottom Line: To the bulls out there, I apologize, but your markets are having a hard time with the headwinds as evidened by the performance of the Tech Sector, Tech Sector ETFs, the DJIA, and Dow ETFs. Although Apple’s iPad 3 and the Dow’s 13,000 mark are huge landmarks and market drivers, neither have managed to push either index and their respective ETFs higher yet. In the face of heavy resistance, both the NASDAQ and Dow might correct in a violent fashion in the form of a huge bubble bath or 13,000 deaths.
Disclaimer: Wall Street Sector Selector trades a wide variety of ETFs and positions can change at any time.