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We know all about the Nasdaq-100 index and the ‘Magnificent 7’ hype lately, but what about the stocks next in line? Well, the Invesco NASDAQ Next Gen 100 ETF (QQQJ) tracks the next biggest 100 Nasdaq stocks after the Nasdaq 100 – roughly Nasdaq stocks Nos. 101 to 200. Before we get into why QQQJ is sporting an attractive technical set up, let’s look inside its holdings and see how it compares to the NDX. Similarities QQQJ and NDX (Nasdaq-100) are similar in a few ways. Technology is the biggest weight for both. This isn’t a surprise given that tech is the biggest sector in the Nasdaq Composite itself. Both are market cap weighted. This explains the overweight in tech, as well. The top five sectors represent 90% of both. This, also, isn’t a shock as the traditional value and defensive sectors always have had a relatively small presence within the Nasdaq. One huge difference Despite both QQQJ and NDX being market-cap weighted and having tech as their biggest sector, the NDX is glaringly top-heavy and QQQJ is not. Six components in the NDX have weightings of at least 4%, while the biggest weight in QQQJ is MPWR at 2.2%. Most importantly, the top 10 NDX stocks represent nearly 46% of the entire index. The top 10 within QQQJ are just 16%. So, at the very least, QQQJ gives investors a more balanced exposure to its holdings than QQQ does. Two Bullish Patterns While all of that is helpful to know, we care most about the chart set up here, and QQQJ could be close to a breakout attempt through a multi-year trading range. This pattern – which resembles a bullish cup and handle – dates all the way back to the spring of 2022 (blue). And because that range is so long, yet another bullish formation has taken shape within it: a second cup and handle pattern that started at the July’23 high (green). Two bullish patterns are better than one, with upside targets near 33 and 32, respectively. To state the obvious, by NOT having broken out yet, QQQJ has lagged the NDX up to this point. This is quite clear on the side-by-side weekly charts…. It’s even more evident on the QQQJ/NDX relative chart, with the question now being whether a major reversal is imminent. The relative line made a new low to start the year with large cap growth leading, but the 14-week RSI did not make a new low, itself. That’s a minor – but potentially noteworthy – positive momentum divergence. In fact, a similar scenario occurred in 2022 that eventually led to QQQJ outperforming NDX later in the year. Big picture, if the equity market is destined to extend even higher from here, the areas that haven’t broken out yet very well could play catch up. And while that means other sectors besides tech could begin to do well, a rotation within Technology itself also could materialize. One such rotation could be seeing QQQJ (and many of its components) begin to breakout from long-term bases. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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