US Tech Sector 2022 – QQQ

I’m choosing the Invesco QQQ ETF as my Markets guide for 2022. The QQQ Exchange Traded Fund comprises Nasdaq Tech Stocks and pretty much follows the rise and fall of the Nasdaq. Some would say Tech Stocks and the Nasdaq can be wild and risky. But we are living in an age where technological advances are so fast and the companies spending Billions of Dollars helping this happen are simply printing money! Even during the COVID Pandemic the Nasdaq was the first to recover and rally the strongest. This is why I have chosen the QQQ ETF as my main focus for 2022, not just as a guide for the Markets but to invest in Pullbacks as long as it sticks to the observations I discuss in this article.

Remember no one has a crystal ball and can’t look right on a trading chart and predict what is going to happen. All we can do is look left, understand that behaviour, frame our charts and based on that behaviour make assertions using the “if”, “and”, “or” logic that traders and investors use to make decisions. This article will talk through the story of QQQ to help frame the chart and help understand those critical logic points.

Firstly, we must go back to the “Pandemic Pullback” of QQQ during February and March 2020 to understand the behaviour of 2020/21 and then what we could see in 2022. We also need to throw into the mix, the current pullback towards the end of 2021, look at the behaviour of some major stocks players in this sector during this latest pullback to help us investigate 2022 possibilities.

So, what I call the “Pandemic Pullback” was indeed parabolic but in my opinion not a “Massive Sell Off” as those TV and social influencers liked to call it at the time!

The Tech Sector broke out of a long-term range bound period towards the end of 2011 and began a steady growth spurt until December 2019 when it broke up out of the long-term growth trend channel (Green Channel on chart below) and the QQQs found a high of 237.47 18^th Feb 2020 (RED down Arrows on chart below).

Then the “Pandemic Pullback” happened and found support at the lower bound of the long-term trend channel (BLUE up arrows on chart below), which I discussed earlier. As you can see it was a parabolic move, but support was found where our technical assertions expected it to! The bounce back was equally aggressive to test those Feb 2020 highs by June 2020. Now it’s not my job to reason why here but to follow the behaviour.

The Bounce back from the end of March 2020 pushed through those previous highs and continued in a tight parabolic move up until the end of August 2020, where we had a slight profit taking pullback in Tech Stocks. This tight channel is depicted on the chart below in blue and red and topped off with the orange down arrows.

We can then see a more orderly Bullish Trend form that we are still in today as I write this article, 22 December 2021. This current Trend Channel in Blue on the Chart Below is what we are going to discuss for 2022 along with some important linear support and resistance zones.

The first major linear Support and Resistance zone on QQQ is centred around the $300 price. This has not been chosen just because of its whole number, but more so by joining major pivots that have tested this new trend channels upper and lower bounds. The top and bottom of this support and resistance zone is shown on the chart below with down and up orange arrows. The zone is also coloured in Orange. So here is the first logic statement:

“If the QQQ price breaks out of the trend channel during 2022 the strong zone centred around $300 should act as support”

Now that is a long way for the QQQ to fall compared to the “Pandemic Pullback” so I would say it’s a last chance saloon type of support and if broken we will certainly be in a bearish market!

The current Trend Channel is strong, and we must move down to the Daily time-frame to look for some recent linear support and resistance zones to help the continuous effort to frame our charts (Chart Below). So here is the next logic statement that will help us understand future behaviour:

“If the QQQ price tests the lower bound of the Trend Channel “and” a Linear Support zone, then the price is likely to remain in the Trend channel”

We can see on the chart below with the pink Support and Resistance zones that I, again, for them by connecting pivots points to form strong upper and lower bounds. Then transcribe them out to the right so that they may become useful in 2022. This process continues throughout the year as further pivot points are formed. You will notice that all, except the latest are out of the `trend channel and would be the first lines of defence for a move down.

The latest Zone shows Pink up and down arrows that highlight the upper and lower bound of the zone. Recent price action witnessed another test of that zone, that was rejected very well. We can say that this zone seems quite strong. We can also see that it crosses the lower bound of the Trend Channel in mid-February 2022. A very strong point of convergence for both linear and non-linear support if tested. This is where that 2^nd logic statement was referring to in the “and” logic. The price may test the Trend Channel lower bound before or after this point and that is why we have these logic statements that consider alternatives but stick to our framing of the charts. So now we have the start of our framework for monitoring the behaviour of the Tech Sector in 2022. This will be continuous throughout the year by adding sensible support & resistance zones as pivot points are formed.

So now drilling down into the pullback during December 2021, which may help us during 2022. One of the simplest methods to understand this behaviour is to use our False Breakout Stochastic as seen in the next chart below. In a typical Bullish Trend, we will see the yellow dots in the overbought zone which identify periods of strong bullish momentum. These are present on the Daily QQQ chart below.

The last time we pulled back against these and crossed in the oversold zone was the 4^th October, which confirmed a support & Resistance zone and was very close to the lower bound. This pivot is highlighted on the chart and stochastic with Black Hands and is the start of the current, short term bullish trend. The next major pivot that tests the upper bound of the Trend Channel is on 22^nd November 2021, highlighted with purple hands. Also note the False Breakout Yellow dots have re-occurred in the overbought zone just after this pivot, re-affirming a strong Bullish Trend

This gives us a measured move from oversold to overbought and therefore affords us a perfect opportunity to measure the recent pullback against that short term bullish trend with a Fibonacci retracement. As you can see on the chart below to 50% retracement was our support and confirms the Linear support & resistance zone we have previously identified. This Behaviour can be measured using Elliott Wave and I will discuss that with a Nasdaq Stock, $AMD, in the next section

As we know the QQQ ETF is comprised of Tech Sector Stocks and if we use some of the bigger stocks that are trending like the QQQ’s then we can further understand the overall behaviour of the Tech Sector and what is the likely outcome in the near and long term. Again, its all about understanding behaviour!

Elliott Wave is just a way of labelling a trend to understand its behaviour. If the Trend confirms to Elliott Wave Rules and Observations, then it is more predictable. For me the 5^th Wave move of an Elliott Wave Sequence is the highest probability move and we are at the beginning of this on many Tech Stocks and therefore QQQ. Therefore, our next two logic statements can be formed:

“If the current 4^th Wave support holds “and” Bullish Volume increases, we can see new highs formed during the first two months of 2022”

“OR”

“If the current Wave 4 Support is broken “and” the Bullish Trend Channel is Broken, we could be into a deep bearish Pullback for the first two months of 2022”

Now I prefer the top statement as the behaviour so far supports this logic statement, but we must be ready if it fails.

I am going to use $AMD as an example in the chart below to discuss this behaviour briefly and why it supports my first statement above. Some of the similar rules apply with Stochastics and pullbacks and measuring them, just like I discussed with QQQ and I will not describe that again.

For me the important observation to discuss is the fact that $AMD had a Wave 4 pullback from the upper bound to the lower bound of its trend channel. The price found support at the 50% Fib Retracement, just like QQQ. The Wave 4 low also coincided with the stochastic crossing in the oversold zone against the strong yellow false breakout dots in the overbought zone during the 3^rd wave. The wave 4 found support in the green zone of our probability pullbacks zones of our ElliottWave Indicator Suite which gives an 85% probability of the automated 5^th wave zone (in Blue) around $175 being hit. So, a short term logic statement for AMD, that will help our overall understanding of QQQ short term movements into 2022 will be:

“If the Wave 4 support holds “or” the Bullish Trend Channel lower bound holds, “Then” the fifth wave target of $175 is achievable”

In conclusion we can see that I am not using a crystal ball to help me look at 2022 predictions for QQQ and the Tech Sector. Rather building a picture of Behaviour by framing the charts and using some trading indicators to help me understand what is possible. Then using logic statements to help me make decisions both in the short term and the longer term for 2022.