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ProShares UltraPro Short QQQ (SQQQ) Presents Bearish Signals and Potential Support at Year Low

StockInvest.us, 2 months ago

StockInvest.us Technical Analysis

ProShares UltraPro Short QQQ (SQQQ) displays characteristics typical of an inverse leveraged ETF that aims to achieve daily investment results, before fees and expenses, that correspond to three times the inverse (-3x) of the daily performance of the NASDAQ-100 Index. Due to their nature, these instruments are typically used for short-term trading strategies rather than long-term investments.

As of December 20, 2023, SQQQ closed at $14.06, experiencing a daily increase of 2.33%, with a trading day range between $13.33 and $14.07. Interestingly, the day's low is also the year low for SQQQ, indicating a potential support level was touched. The ETF is significantly down from the year's high of $58.29, reflecting sustained bearish sentiment in the underlying NASDAQ-100 Index and potential overextension in the associated equities.

SQQQ's current market capitalization is approximately $3.81 billion, with a substantial trading volume of 129.63 million shares, which is just shy of its average trading volume of 130.53 million shares. This suggests a high level of trader interest and liquidity in the ETF.

The Relative Strength Index (RSI) of 27 indicates the ETF is currently in an oversold condition. This could potentially signal a short-term price correction or consolidation, as traders might consider the ETF undervalued at these levels relative to recent price action.

Looking at the moving averages, SQQQ is trading well below both its 50-day ($17.65) and its 200-day moving averages ($22.27), reinforcing the bearish trend in the medium to long term. The negative MACD (3-month) of -0.56 further suggests that the downward momentum has been strong in recent months. However, these could also signal that a trend reversal might be overdue should the underlying index stabilize or rebound.

The Average True Range (ATR) of around 4.21 indicates high volatility, which is a hallmark for a leveraged inverse ETF like SQQQ.

Technical support and resistance levels for SQQQ are $13.93 and $16.30, respectively. These levels are critical; a breach of support could lead to further downturns, while overcoming resistance might lead to a relief rally.

Fundamental Analysis

SQQQ Fundamentally, SQQQ is a derivative product that does not have earnings per share (EPS) or a Price-to-Earnings (PE) ratio in a traditional sense, as its value is derived from the underlying assets' performance. ProShares's SQQQ ETF does offer a dividend yield of 1.99%, with the next dividends distributed on December 28, 2023, which might be seen as a marginal incentive to hold the ETF over the ex-dividend date for income-seeking investors.

As an inverse leveraged ETF, SQQQ's fundamental analysis mainly relies on the performance and expectation of the NASDAQ-100 Index. One should consider macroeconomic factors, sector-related news, and broad market sentiment to understand potential movements in SQQQ's price.

Given the current market landscape as of December 21, 2023, investors may also need to consider recent Federal Reserve actions, inflation reports, and other economic indicators that could impact technology and growth stocks majorly composing the NASDAQ-100 Index.

Predictions for the Next Trading Day and Upcoming Week

Given the closing price near the year's low, if traders anticipate a rebound in the NASDAQ-100, SQQQ could see a minor pullback as these leveraged ETFs generally decay over time due to their daily rebalancing. However, if bearish sentiment prevails within the technology sector, SQQQ may continue its ascent in the near term.

For the next trading day on December 21, 2023, with an RSI signaling potential oversold conditions and a substantial gap from the moving averages, there's room for a modest corrective rebound. Still, this movement is likely to be contingent on broader market sentiment, and the ETF could remain range-bound between its immediate support and resistance levels.

Over the upcoming week, the performance will be heavily dependent on the tech sector's momentum. If there is positive news impacting the NASDAQ-100, we could see SQQQ decreasing in value, conversely, the continuation of negative trends would lead to its increase due to its inverse relationship with the index.

Overall Evaluation

Considering the technical indicators and the nature of SQQQ as a short-term trading vehicle rather than an investment, a "Hold" recommendation is advised for existing positions, particularly for speculative traders who are betting on a short-term continuation of the downward trend in the NASDAQ-100. New entries should be cautious and employ strict risk management due to the ETF's volatility and decay

Check full SQQQ forecast and analysis here.