SQQQ: Red Flags For Market Euphoria

seekingalpha09-21

SummaryThe Fed's 50bps cut led to market euphoria, and the S&P500 broke to new all-time highs.However, market internals showed sluggish performance with fewer stocks breaking out and leading stocks ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2469605458?lang=en_US&edition=fundamental","thumbnail":"","is_english":true,"pubTime":"2024-09-21 03:52","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2469605458","market":"us","top_or_hot":-1,"title":"SQQQ: Red Flags For Market Euphoria","media":"seekingalpha","content":"<div>\n<p>SummaryThe Fed's 50bps cut led to market euphoria, and the S&P500 broke to new all-time highs.However, market internals showed sluggish performance with fewer stocks breaking out and leading stocks ...</p>\n\n<a href=\"https://seekingalpha.com/article/4722389-sqqq-red-flags-for-market-euphoria\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SQQQ: Red Flags For Market Euphoria</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSQQQ: Red Flags For Market Euphoria\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-21 03:52 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4722389-sqqq-red-flags-for-market-euphoria><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryThe Fed's 50bps cut led to market euphoria, and the S&P500 broke to new all-time highs.However, market internals showed sluggish performance with fewer stocks breaking out and leading stocks ...</p>\n\n<a href=\"https://seekingalpha.com/article/4722389-sqqq-red-flags-for-market-euphoria\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SQQQ","symbol_name":"纳指三倍做空ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4722389-sqqq-red-flags-for-market-euphoria","article_id":"2469605458","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2469605458","pubTimestamp":1726861967,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The Fed's 50bps cut led to market euphoria, and the S&P500 broke to new all-time highs.However, market internals showed sluggish performance with fewer stocks breaking out and leading stocks like the ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SQQQ":"纳指三倍做空ETF","BK4581":"高盛持仓","NDX":"纳斯达克100指数","BK4588":"碎股","BK4504":"桥水持仓",".IXIC":"NASDAQ Composite","BK4550":"红杉资本持仓","BK4593":"纳斯达克ETF","BK4559":"巴菲特持仓","BK4534":"瑞士信贷持仓","BK4585":"ETF&股票定投概念"},"translate_title":"SQQQ：市场兴奋的危险信号","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{".IXIC":1.1,"NDX":1.1,"SQQQ":1.1,"US7Y.BOND":0.77,"US6M.BOND":0.77,"US5Y.BOND":0.77,"US3Y.BOND":0.77,"US30Y.BOND":0.77,"US2Y.BOND":0.77,"US10Y.BOND":0.77,"US12M.BOND":0.77,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6},"content_text":"SummaryThe Fed's 50bps cut led to market euphoria, and the S&P500 broke to new all-time highs.However, market internals showed sluggish performance with fewer stocks breaking out and leading stocks like the \"Mag 7\" stuck in range.Seasonality, stretched valuations, and crowded trades suggest \"Mag 7\" stocks may not lead soon, impacting QQQ's rally sustainability.SQQQ is a tactical short-term trade option if the S&P500's breakout fails or USDJPY carry trade unwinds, but it's currently rated a \"hold.\"mozcannThe Fed just delivered an oversized 50bps cut and a bullish statement which talked about maintaining strength rather than averting recession. Understandably, the broader market (SPY) has broken to new all-time highs and there is an element of euphoria. However, there are some signs this rally may not maintain its strength, and one of the main red flags comes from relative weakness in leading stocks and the Nasdaq (QQQ). None of the \"Mag 7\" stocks have made new highs, and the breadth of the rally wasn't impressive at all. This article looks at whether it is a time to buy, or whether caution and even a short with the ProShares UltraPro Short QQQ ETF (NASDAQ:SQQQ) is an option.Red FlagsMarkets were a sea of green the day after the Fed cut. SPY closed +1.73% higher, QQQ +2.53% and the Russell2000 (IWM) +2.03%. I was therefore somewhat surprised to see market internals stay relatively sluggish. I measure this through a number of indicators, mostly how many stocks in the NYSE are moving higher versus how many are moving lower. On very strong days, over 90% move higher. On Thursday, it was a respectable but not great 79%. Furthermore, only 74% of volume was flowing into rising stocks.NYSE Internals (Tradingview)NYSE new highs were at 189. They are frequently above 300.NYSE New Highs (Tradingview)Fewer stocks were breaking out than at other times this year, and not only that; the stocks that were breaking out were of less importance (or lower weighting). All the \"Mag 7\" remained at lower highs, and these heavy weighted mega cap stocks make up 42.4% of QQQ.QQQ Top 10 (Seeking Alpha)Neither QQQ nor SPY is likely to maintain a rally without these leading. As they are at lower highs, they still have plenty of overhead resistance. Take Nvidia (NVDA), for example:NVDA Daily Chart (Tradingview)There are two significant hurdles still to clear, and it is unlikely NVDA can sail through both without periods of consolidation. Other \"Mag 7\" stocks have similar charts and concerns. The market heatmap shows Thursday was a good day for them, but looking at their charts, you have to wonder if it was just one good day and then more of the same.Market Heatmap (Tradingview)Away from the \"Mag 7,\" there were pockets of weakness in consumer staples (XLP), real estate (XLRE) and utilities (XLU), which all closed down. Falling rates should actually be a positive for these sectors, but there appears to be some profit taking and a rotation into other names for now.The Outlook for QQQThursday's session was strong for QQQ and there is a case to be made that the relative weakness is over and \"Mag 7\" will start leading again. I disagree for several reasons.Firstly, seasonality and the upcoming election are likely to weigh. September and October in election years are historically weak for obvious reasons - markets hate uncertainty.Presidential Cycles (BofA)Secondly, many \"Mag 7\" stocks have stretched valuations, and it seems the market wants to pause and let earnings catch up to compress PE ratios. Earnings are mostly due in late October and November.Thirdly, \"Mag 7\" stocks have finally felt the negative side of being a crowded trade. This is from an Investopedia article in June:Long bets on the so-called \"Magnificent Seven\" have become increasingly popular, with 69% of hedge fund managers calling it the most crowded trade in a new Bank of America survey, the highest concentration around the stocks since over 70% called long bets on U.S. tech stocks in October 2020.What really hurt them in late July and early August was the fall-out from the USDJPY carry trade unwind. Traders needed liquidity and sold other holdings. Since they were mostly invested in the same \"Mag 7\" names, they took the brunt of the selling.Once the election is concluded and earnings season in underway, the situation may change, but I think the outlook is mixed for now and don't expect a sustained rally.The Case for SQQQSQQQ is a short-term trading vehicle which seeks to provide a 3x inverse exposure to the QQQ for the duration of one session. Holding SQQQ for longer periods delivers different results and can trap you in a losing position. Just look at the long-term chart of SQQQ and you will see what I mean. The real danger comes from negative compounding. This is covered by the SEC in its long explanation on the risks involved in holding inverse ETFs, and a useful example is provided below:Let’s say that on Day 1, an index starts with a value of $1000 and a leveraged ETF that seeks to double the return of the index starts at $1000. If the index drops by 100 points on Day 1, it has a 10 percent loss and a resulting value of $900. Assuming it achieved its stated objective, the leveraged ETF would therefore drop 20 percent on that day and have an ending value of $800.On Day 2, if the index rises 10 percent, the index value increases to $990. For the ETF, its value for Day 2 would rise by 20 percent, which means the ETF would have a value of $960.On both days, the leveraged ETF did exactly what it was supposed to do – it produced daily returns that were two times the daily index returns.But let’s look at the results over the 2 day period: the index lost 1 percent (it fell from $1000 to $990) while the 2x leveraged ETF lost 4 percent (it fell from $1000 to $960). That means that over the two day period, the ETF's negative returns were 4 times as much as the two-day return of the index instead of 2 times the return.Clearly, SQQQ is an extremely risky investment, and I urge anyone trading it to position size appropriately and have an exit plan, even if that involves taking a 10-20% loss. SQQQ is not something you can hold long-term and hope it recovers.That said, there are specific situations where I might look to buy for a short period. One would be if the S&P500 fails to hold its recent break-out and drops back below 5669 and the July high. This would show this week's euphoria was misplaced and traders were actually selling into the strength. It could lead to several weeks of weakness, and lagging parts of the markets such as QQQ may fall the furthest.A second scenario where I might look to hold SQQQ would be if the USDJPY carry trade unwinds again like it did on August 5th. With the Fed cutting 50bps, rate differentials are narrowing, but the BoJ did at least keep rates on hold this week, so this has steadied the ship. USDJPY seems to have found support in the 140 region and has recovered to 142.4 at the time of writing.While the situation looks calm for now, if the BoJ makes any strong hints another hike is coming or USDJPY breaks below 139.5 again, it could be time to buy SQQQ.ConclusionsThis week's 50bps Fed cut and subsequent rally may look bullish, but may not be sustained without the leading mega-cap stocks breaking out too. All the \"Mag 7\" remain at lower highs and below resistance. Seasonality and other factors suggest they may stay in current trading ranges until at least after the election.Should the S&P500 break-out fail and reverse lower again, QQQ could lead the way lower and SQQQ may set up a for a short-term trade. I cannot rate it a \"buy\" until specific scenarios play out, but I think traders can prepare to use it tactically and therefore rate it a \"hold.\"","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"Economic Data,analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.1","shortVersion":"4.28.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2469605458"}