The election knocked chip stocks off a cliff last week.
The big question this week is whether the selloff is over.
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Monday made a strong case that it is. Most of the names I’m watching ran, and the chip fund at the top of my list jumped 22% in one day.
I’d been waiting for one more flush before buying, a real washout where the last people holding on finally give up. It never came. Stocks just turned and ripped.
Some of the biggest opportunities I see come right after a selloff shakes everyone out. If this selloff is over, there could be more days like Monday ahead, and I want to be in for the next one.
But I want proof first. Tuesday’s inflation report came in hot, and Fed Governor Christopher Waller had already said a reading that hot would put a half-point rate hike in December on the table.
So I’ve got one price marked on Invesco QQQ Trust (NASDAQ: QQQ), the level where I’d start calling this a real recovery. If QQQ gets back above it and stays there, that’s a sign buyers are back.
QQQ has traded above that price two days in a row now. Both days, it closed back under.
These are the two prices I’m watching, and my plan for both.
QQQ holds the biggest tech and chip stocks in the market, including the ones behind the fund I’m watching closest.
A bounce in a handful of stocks can fade by the next morning. If QQQ comes back with them, it’s a sign the buying is spreading beyond a few names.
Right now, two prices are worth watching.
The lower one is $647, last week’s low.
QQQ traded as high as $701.45 on November 4, the day after the election. The next day, it fell to $647.05 before buyers finally stepped in.
If it breaks back under that price, the flush I’ve been waiting for is on. Let the break happen, then wait for a fast snap back above $647 and a higher low.
To me, that’s the sign the selling has burned out. It’s where I’d start buying small, with my exit already set.
The higher one is $680, right about where the 200-day moving average sits. If the fund gets back above $680 and holds, that’s a sign buyers are back in control.
I start buying right there, with a first buy smaller than normal and my exit set before I’m in.
On Monday, QQQ opened well above $647 and climbed most of the day. It finally traded above $680 at 2:38 in the afternoon. Then it slipped and closed at $679.35, just under $680.
On Tuesday, QQQ opened lower after the hot inflation report. It still traded back above $680, and then it closed under again at $674.76.
Even after Monday’s rally, the fund is still below its Election Day close of $685.28.
A flush under $647 would still make buying a lot easier for me.
QQQ could push straight through $680 today or roll back toward $647.
Right now, it’s sitting between those two prices. Until it breaks one of them, I wait.
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Stay sharp,
Jack Kellogg
*Past performance does not indicate future results