To say the PowerShares QQQ (NASDAQ: QQQ) is an important fund within the ETF landscape is an understatement. Home to over $29 billion in assets under management, QQQ was the sixth-largest U.S.-listed ETF at the end of April. Not only that, but QQQ is commonly known as THE Nasdaq 100 tracking ETF. With an allocation of almost 19% to Apple (NASDAQ: AAPL), one of the largest weights of any ETF to that particular stock, QQQ is also known to be one of the ETFs investors use as an Apple proxy when they can't afford Apple $500+ price tag.

Those superlatives notwithstanding, times have been tough lately for the Nasdaq and QQQ. In the past month, the fund has tumbled 6.5%. Since the end of April, investors have pulled about $3.5 billion in cash out of the fund.

Compounding those woes is the fact that the technology sector is traditionally vulnerable to a bout of the summertime blues. Said differently, the May-July time frame is usually quite harsh to tech stocks and if those summertime blues come to pass, QQQ could be in big trouble. For now, support seems firm at $61.75, but a few closes below there would mean QQQ probably retests its 200-day moving average just below $60.

Of course, if all of those bad things are happening, it probably means there's something wrong with Apple and that would mean there's something wrong with the entire market. That's one way of saying that Apple is the tail that wags QQQ's dog. Humorous animal clichés aside, Apple highlights the risk/reward scenario with QQQ.

Given the ETF's large weight to the tech juggernaut and the fact that its reasonable expense ratio and excellent liquidity allow QQQ to be a suitable Apple replacement ETF, QQQ is one of the places investors want to be when Apple is surging higher. However, the rub in that scenario is only one or two other ETFs are more vulnerable when Apple pulls back.

The big question regarding Apple right isn't the stock's compelling valuation and sterling fundamentals. Those are known quantities. The biggest concern is price action, as in what will happen first: Apple falling to $500 or rising back to its all-time at $644? The fall to $500 would move QQQ by at least 5%. In this hypothetical scenario, there would likely be nothing Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOG), Intel (NASDAQ: INTC) or any of QQQ's other marquee holdings could do to stem the tide of selling.

For long side investors, hopefully that won't happen. Just remember, so goes Apple, so goes QQQ.

Related Articles
  1. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  7. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  8. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  9. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  10. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center