Invesco QQQ Trust Nasdaq ETF: Why is Nasdaq 100 (QQQ) falling?

• Nasdaq 100 ETF loses more ground on Friday.
• Nasdaq 100 trends lower as higher rates hit tech stocks.
• QQQ staged a dead cat bounce on Thursday.

The Nasdaq 100 (QQQ) remains strictly in a short-term bearish formation with a series of lower lows and lower highs. This has been in place since the market topped out at the beginning of September, and since then it has been one-way traffic. September is historically a poor month for stocks, and it certainly lived up to its reputation for the Nasdaq 100. October is not much better and is known for its volatility. That is certainly what we are seeing so far.

The biggest headwind facing the Nasdaq and tech stocks has been the rising yield environment in which stocks now find themselves. Tech stocks do not like higher yields as this depreciates future earnings by more than previously. Most tech stocks are high growth with high anticipated future earnings. These are discounted to present value using the prevailing interest rate, so the higher the interest rate then the higher the discount.

Also, for any stock, not just tech names, there is always a comparison to be made versus the risk-free yield available on government bonds. If the risk-free rate is higher, then equities need to offer a higher yield to attract investment. Higher yields mean the comparison is tighter now and the TINA (There Is No Alternative) trade is not driving equity markets like it used to.

QQQ stock news

Friday's jobs report was disappointing with the equity market staging a quick knee-jerk rally on the probable delay this weak number will have on Fed tapering and rate rises. However, it was not long before the bigger longer-term players began offloading sectors they saw as particularly vulnerable to what this weak employment report really hints at: stagflation. The dreaded lack of growth but rising inflation is a distinct possibility now. Once again this morning, Goldman Sachs has cut its growth forecast for the US economy. This is the third cut made by Goldman in 2021.

Earnings season approaches, but the Nasdaq names sit out the first week, which is usually reserved for investment and commercial banks. Q3 earnings are again set to be strong, but the market has come to expect strong earnings now. We saw in Q2 over 80% of companies beat expectations, but not all those beats resulted in the share price pushing on. This earnings season is likely to see an increased investor focus on outlook and supply chain and inflationary comments during the conference call. This is the main concern for investors. They find themselves in an inflationary environment with surging energy prices, surging shipping costs and shortages of semiconductors chips. 

QQQ stock forecast

A series of lower highs and lower lows was the structure, but Friday's early promise was shortlived with a red candle. Failure to take out Thursday's high shows this bounce for what it is – a dead cat. The only positive is the QQQ trading above the 9-day moving average and look for this to break and the bearish trend to resume. The big target is a break of the lower trend line at $352. This trend line has been in place since November of last year, and this is the fourth test of it.

The more tests of a trend line or support resistance, then the more likely it is to break. Breaking that and then the low from last week at $350 brings the Qs into a light volume zone, meaning an acceleration to $340 is likely. This is the extended region for dip buying. Down here is the 200-day moving average and the yearly Volume Weighted average Price (VWAP), which provides a strong volume profile.