More than 75% of companies report earnings over the next three weeks. Ideally, we do not want to hold a position over an earnings report so that dramatically reduces the number of available stocks we can play. Add in the market decline to support and only 27% of the S&P-500 trading over their 50-day average and we have a very small subset of stocks to consider.
Today I am going to add the QQQ after the earnings surprise from Netflix. That could translate into some positive sentiment for the Nasdaq and there are some other big cap techs reporting this week. Intel and Microsoft are both scheduled to report and both should beat estimates.
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QQQ - Powershares QQQ ETF - ETF Profile
PowerShares QQQ, formerly known as "QQQ" or the "NASDAQ- 100 Index Tracking Stock", is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.
The QQQ dipped to support at $116 on Thursday. Shares rebounded in the Friday short squeeze but closed at the lows for the day. On Monday the ETF faded with the market ahead of earnings from IBM and Netflix. After the Netflix earnings, the QQQ traded up slightly in afterhours.
Of all the companies reporting over the next couple weeks the tech sector has the best chance of posting positive earnings. That should make the Nasdaq/QQQ a little stronger than the broader market.
While there is no guarantee the market will follow traditional seasonal trends, Monday was the first day of the six best weeks of Q4 in normal years. End of fiscal year window dressing by funds occurs between now and the year end on October 31st. There is a possibility the election could damage this normal seasonal cycle if portfolio managers are too confused to know how to invest depending on which candidate wins Wednesday's debate.
If that is the case, the most likely action will be for managers to throw all their excess cash into big cap tech stocks as a way to be fully invested but also have limited risk. They can exit those positions quickly once we are in November.
This is a play on the expected relative strength of big cap tech stocks over the next six weeks.
With a QQQ trade at $117.50
Buy Dec $119 call, currently $2.04. Initial stop loss $115.25.
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