The NASDAQ-100 Index Tracking Stock (AMEX:QQQ) has yet to relinquish the the $40 level this morning and currently is the most active security in the market with 29.7 million shares traded. The QQQ has not closed below the $40 level since it closed there on April 10th at $39.80. Much like yesterday's close below the 2,000 level, the $40 level in the QQQs might be psychological. With volume brisk today, it looks like the bulls are trying to circle the wagons.
NASDAQ-100 Index Tracking Stock - last seven months
The QQQ is struggling to hold the $40, but for now it stays above that level. About the only reason I can think of for the fair amount of strength we're seeing here is that there may be a lot of trading desks that are getting a little shy of getting to aggressive on the bearish side and may be looking to hedge their bearish positions by purchasing the QQQ.
If I believe in this scenario, then I would definitely consider a close below the $40 level as a sign of further weakness to come. We've seen in recent days and weeks that the short-term rallies were mostly due to short-covering by bears. Once they were through covering and had limited their risk, the selling that continued drove stocks lower. If institutions are indeed trying to offset some bearish risk by purchasing the QQQ at current levels, then if they stop that activity, the QQQ should break below the $40 level. If however, bonds were to see selling and YIELDS turn higher, then the institutional trader would probably benefit with a potential rise in the QQQ. That rise might offset some of their bearish positions shorted while making markets in some of the larger NASDAQ-100 stocks.