Q's Underforming in Rally

The rally in the PowerShares QQQ (NASDAQ: QQQQ) since last Friday’s low at 42.63 has recovered about 20% of the entire down-move off of the Jan 11th high at 46.80, which contrasts to a recovery rally of about 35% in the S&P 500 Depository Receipts (AMEX: SPY). Whereas the Q’s led the charge on the upside in last year’s powerful, relentless multi-month advance, so far during 2010 they have led on the downside and have underperformed during the current upmove. Let’s notice that the Q’s are approaching a test of the January resistance line, now at 43.70. The SPY hurdled its equivalent down trendline yesterday afternoon at 108.90 (the SPY is now at 110.06). I will be interested to see if the Q’s have “the right stuff” to hurdle, sustain and accelerate to the upside from the trendline. If not, then let’s be prepared for sellers to re-emerge in the tech sector with a vengeance. In any case, my optimal target window for this rally in the Q’s is 44.00-44.25 prior to my expectation of a downside reversal.

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