Saturday, November 4, 2006

Nasdaq-100 May Be Reaching a Top

I wanted to take the opportunity to mention the Nasdaq-100 and Exchange Traded Funds (ETFs). ETFs are like Index Mutual Funds; however, they are traded like stocks. Until this past week, I had been holding shares of an ETF called Nasdaq-100 Tracking Stock (Nasdaq: QQQQ) which I purchased back in July (before I started PFStock). As an ETF, QQQQ is broadly positioned with 100 of the largest Nasdaq companies as its components.

Some of my investment decisions are based on technical analysis (i.e. looking at the chart) of an investment. The recent run-up of QQQQ is a nearly picture perfect example of how to buy into an uptrend. Here is a 6-month price chart of QQQQ (click to enlarge):

As I had mentioned, I first purchased QQQQ in July. From the chart, you can see that QQQQ hit a low in July. Low price alone is generally not enough of a reason to justify buying a stock. I waited until almost the end of July, when QQQQ was starting into an uptrend before buying. From there, I've held on until this past week. You can see that stock price has seen some dips along the way, which might stop out some traders.

Currently, the Nasdaq-100 Index is starting to encounter some resistance after this prolonged uptrend. If you look at the very end of the QQQQ chart for the past several days, you can see some recent weakness.

Although QQQQ may continue to climb, and I have closed out my position in QQQQ. This doesn't necessarily mean that I think that QQQQ is going to drop. However, I'm pretty confident that we won't be seeing the same kind of increase in QQQQ that we have in the past three months. QQQQ is near a 52-week high again, and has entered a volatile phase where it might be risky to take either a long or short position.

My opinion is that the safe thing to do now is to take profits. These are a certainty, and it is perhaps time to look for other investment opportunities. I will caution you, though, that I have a tendency to sell a little bit early.


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