Nasdaq 100, Insurance ETFs Look More Compelling in Improving Equities Market

My Chart of the Day is the Nasdaq 100 etf (QQQQ). This leading growth index looked like it hit a double-top last week, and then reversed lower. On Thursday and Friday last week, it sold off and tested support at its 200-day average.

Tuesday was day 3 of that support testing, and we got a very solid bounce from those levels. In the chart above, you can see how the index touched that red line, and then rocketed higher. The index rose +3.5% Tuesday, a big one-day move. Moreover, volume rose, making for a nice accumulation day.

As we have seen for awhile now, since the March lows, the market continues to stair-step higher. Each time it looks like it is on the verge of rolling over, buyers step in to put money to work. This provides a nice backdrop for growth stocks, which continue to offer good trading opportunities.

At some point, we will need to see the number of new highs on the Nasdaq expand. But for now, I am content to try to take advantage of trading opportunities, trading around positions and looking for new buys on breakouts. I would highlight stocks like JOYG, QCOM, SXCI, and AVID as falling into the latter group.

The second chart (above) shows the insurance etf (KIE), that I have been eying. I stepped up and bought it today, as it also has been consolidating nicely, and looks ready to move higher again.

Tuesday's action lifted the etf back above its 200-day average, which could bring out more buyers. Also, if you step back and look at the chart for this year, you can see what looks like a big cup-and-handle formation developing.

If the KIE can break above its early May highs on expanding volume, it would be a bullish acknowledgement of this technical formation, and portend even higher prices. Fundamentally, I think that the access to TARP funds and the improving equities market makes the case for these stocks more compelling as well.

Disclosure: long KIE

Comments

[AndrewBaker:]

If insurance companies are moving higher then I know the fix is in! (But I'll trade 'em if people want to throw their money away.)

May 28 03:22 PM

[RiskReturnO...:]

QQQQ has found strong support at the 200 day MA. As other sectors have rolled over (like Consumer Discretionary), Tech (QQQQ) remains very strong.

Watch EWZ (Korea) and EWT (Taiwan) as good parallel indicators for strength in consumer technology. Volume and price trends for these two ETFs continue to be very bullish, suggesting continued strength in QQQQ (at least relative to SPY).

May 30 06:10 PM