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TQQQ ETF Trends Upward with Overbought Signal, Potential for Short-Term Retreat

StockInvest.us, 2 months ago

StockInvest.us Technical Analysis

The ProShares UltraPro QQQ ETF (TQQQ) had its last close at $51.54 on December 27, 2023, indicating a daily gain of 0.53% which continues its recent upward trajectory. This ETF tracks the NASDAQ-100 Index but aims to deliver three times the daily returns of the index, making it a leveraged ETF. The relative strength index (RSI14) is at 82, which is traditionally viewed as an overbought signal indicating that the ETF could be due for a short-term retreat or consolidation as traders may start taking profits.

The daily trading range on December 27 was between $51.02 and $51.66, with the high also being the year high, suggesting that TQQQ is currently at its peak performance for the year. In terms of moving averages, TQQQ is significantly above both its 50-day moving average (DMA) of $41.73 and its 200-day moving average of $36.88, highlighting a strong bullish trend in the medium to long term. Moreover, the moving average convergence divergence (MACD) stands at 1.94 which also supports the strength of the current trend. The average true range (ATR) at approximately 2.93 suggests relatively high volatility, which is to be expected with leveraged ETFs.

The volume on December 27 was about 55.25 million, which is less than the average volume of approximately 104.49 million, signifying a lighter trading day but one that still managed to push the ETF to new highs. Within the context of market capitalization, TQQQ stands at $19.11 billion, showing a broad investment base. Furthermore, with a recent news highlight indicating that TQQQ was among the 10 most actively traded ETFs in Q4, liquidity and investor interest remain high.

Fundamental Analysis

TQQQ Fundamental analysis for TQQQ is unique as it is an exchange-traded fund (ETF) that reflects the performance of the NASDAQ-100 Index with leveraged exposure. Hence, traditional metrics like earnings per share (EPS) and price-to-earnings ratio (PE) are not applicable. Instead, the fund's health is gauged by the performance of its underlying index and the demand for leveraged exposure to tech-heavy securities.

The lack of explicit resistance levels, considering it is at its year high, and the strong market cap suggest a continued vote of confidence from the market in the tech sector and in the appetite for leveraged instruments. The support level at $44.4 will be critical to watch if a pullback occurs due to its overbought condition.

Short-Term Outlook

For the next trading day and upcoming week, the heightened RSI level and the ETF reaching new yearly highs could mean that a consolidation or mild pullback might occur as some traders take profits. However, given the momentum and lack of immediate resistance, any pullback might be seen as a buying opportunity for those bullish on the tech sector in the short term. Observing the previous day's low and the stop-loss level could provide an added layer of insight into the strength of the current trend.

Overall Evaluation

The overall rating for TQQQ currently aligns with a 'Hold' category with a cautious view towards potential 'Buy' signals for investors seeking high-risk, high-reward exposure to the tech sector. The technical indicators suggest sustained momentum, but the 'Hold' recommendation also factors in the overbought RSI levels which could precede a short-term correction. Investors should monitor volume changes and the support level closely, as a definitive break below these could signal a deeper reversal. Additionally, given the volatility associated with leveraged ETFs, it is advisable for interested investors to have a strong risk management strategy in place.

Check full TQQQ forecast and analysis here.