From Zacks: Has the time finally come when investors have had enough of Dow, and are now thinking of taking a look at Nasdaq? The Nasdaq Composite’s new record high on January 5, 2017 and gains seen in three consecutive days testify to the trend. On the other hand, the Dow Jones Industrial Average and the S&P 500 slipped after a strong run in the first two days of the year (read: 7 ETF Areas to Hog the Limelight in 2017).
Investors should note that tech stocks fell into the questionable spot after Donald Trump’s win. This is because Trump is expected to take stricter steps on immigration and outsourcing – the two pillars that the tech sector stands on.
As a result, tech-laden Nasdaq couldn’t match with the pace of the Dow Jones in late 2016 when the latter flirted with the 20,000 mark and hit several all-time highs (read: DOW ETFs: More Rally Ahead or Have You Missed the Boat?).
However, the year 2017 opened up nicely for the Nasdaq with PowerShares QQQ ETF (QQQ – Free Report) – which tracks theNasdaq 100 index – adding 2% so far this year (as of January 5, 2017). Relatively cheaper valuation may give an edge to this index over the Dow Jones and the S&P 500 in the near term.
Can the Winning Steak Continue?
Investors should note that the earnings picture of the technology sector has been reassuring lately. Expected earnings growth for the technology sector for Q1 of 2017 is 10.7% on 6.5% higher revenues, as per Zacks Earnings Trends published on January 4. Growth rates are among the best in the industry.
The technology sector is said to be a cyclical one and performs well in a growing economy. Recent data points give cues of economic well-being. An influence of this uptick in the economy on the stock market was only natural. If stocks continue to do well, a wealth effect can be realized and tech stocks may prosper out of this cyclicality (read: Tackle Trump & the Fed with These Cyclical Sector ETFs).
QQQ now has a positive weighted alpha of 16.80 and volatility of 8.71%. Investors should note that a moderate but positive weighted alpha hints at more gains, though for not too long. However, the fund is less likely to see high volatility.
As per barchart.com, on its way up, the first resistance point will likely come at $121.18, marking a 0.3% premium to the current level. The second resistance point is at $121.49, about 0.5% premium to the current market price of QQQ.
Investors should also note that QQQ is yet to enter the overvalued territory with a relative strength index of 59.98. So, investors are likely to realize moderate gains in the coming days, if the rally continues.
ETFs to Watch
In this section, we have highlighted three ETFs that have significant exposure to stocks that are listed on the Nasdaq and may gain significantly from the rally.
This ETF follows the Nasdaq-100 Index, holding 107 stocks in its basket. Apple takes the top spot with nearly 10.8% share of assets, followed by Microsoft (8.5%) and Amazon (6.3%). The product is quite popular with nearly $41.7 billion of AUM and a solid volume of around 23 million shares a day. It charges investors 20 bps in fees per year. It has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook (read: ETFs to Watch as Nasdaq Hits All-Time High).
QQEW looks to replicate the performance of the NASDAQ-100 Equal Weighted index. The fund invests $405.7 million of its assets in 107 stocks. No stock accounts for more than 1.11% of the basket. The fund appears heavily invested in the Technology sector with about 35% allocation, followed by about 27.2% in Consumer Services and 17.2% in Health Care. The fund charges 60 bps in annual fees. Presently, it carries a Zacks ETF Rank #3 with a Medium risk outlook.
Fidelity Nasdaq Composite Index Tracking ETF ONEQ)
This Zacks Rank #3-ETF holds 2001 stocks in the basket. Apple takes the top spot with nearly 7.5% share of assets, followed by Microsoft (5.9%) and Amazon (4.3%). The product has amassed $818 million in its asset base. It charges investors 21 bps in fees per year.
PowerShares QQQ Trust ETF (NASDAQ:QQQ) closed at $121.93 on Friday, up $1.06 (+0.88%). Year-to-date, QQQ has gained 2.91%, versus a 1.65% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Zacks Research.