In the last few days, there's been a noticeable momentum change in the technology sector. Some of tech's biggest names, like (AMZN​), Alphabet (GOOGL) and Apple (AAPL​), have all significantly underperformed the Nasdaq 100. Meanwhile, the Federal Reserve's plan to sell off assets on the U.S. government's balance sheet and hike interest rates in December is still on schedule. The result looks like a rotation out of riskier assets with more premium valuations, such as technology, into financials, a sector with a cheaper valuation and one that would benefit from higher rates.

Looking more closely at the Nasdaq 100, represented by the PowerShares QQQ ETF (QQQ), there is a case to be made for a double top and in turn, a move lower. In the beginning of September the QQQ moved up to $146, followed by a small 2% dip and then a move back up to $146. At this point the QQQ stalled, and now we are faced with a defined top in the ETF and a negative Moving Average Convergence Divergence (MACD) reversal. This is significant is because a negative reversal implies that the momentum has changed in the index from positive to negative.


Another technical indicator to follow that measures momentum is the Directional Movement Index (DMI), which is made up of a positive and a negative directional movement indicator. When the negative directional indicator crosses above the positive, it is a sell signal. This confirms the negative MACD reversal and makes the sell signal even more significant.

As stated above, the resistance level to watch on the QQQ is $146, since this has been the high in September and has failed now multiple times. The next support level to watch is $144, the September low, which represents support from the July uptrend line. After $144, the next important support level is $141. Should we see a sell-off down to $141 into quarter’s end, it could represent a more significant change in the market. Investors might be looking to take a risk-off stance ahead of what could be a more fundamentally challenging period for markets.

The Bottom Line

After stalling at $146 all throughout the month of September, there is a clear short-term top in place for the Nasdaq 100, represented by the PowerShares QQQ ETF. With two major momentum indicators now negative, a pullback to new lows for the month could be imminent, with a potential move down to the August low of $141.

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