QQQ: Bullish Asymmetric Reward-to-Risk Here

Nasdaq Down 9 of 10 Weeks: Bullish?

One of the most important reasons to check market stats is that they cut through the market noise, manipulation, and misconceptions. For instance, most investors would presume that when the Nasdaq Composite is down 9 out of 10 weeks (as it is now), stocks are often in a bear market, and lower prices are on the horizon. However, the market stats show just the opposite, illustrating how Wall Street is the master manipulator. In fact, since 1978, when the Nasdaq Composite is down 9 out of 10 weeks, similar episodes of selling have seen the NASDAQ higher 3 months and 1 year later every time, with an average gain of 32.5% after 1 year. (Source: The Market Stats, @TheMarketStats)

Image Source: The Market Stats

QQQ: Classic Stop Run & Capitulation

A “stop hunt” or liquidity grab occurs in the stock market when a price movement occurs specifically to trigger a large cluster of stop-loss orders. This type of price spike through an obvious stop-loss zone helps wash out weak hands, setting the stage for a move in the opposite direction. Friday, the Nasdaq 100 Index ETF (QQQ) saw a classic stop hunt below the 200-day moving average. Friday, QQQ closed below the 200-day moving average for the first time since mid-2025, triggering stop losses. However, on Monday, QQQ is retaking the level with authority, a sign that weak holders are likely shaken out and the index is ready to move higher.

Image Source: TradingView

Volume Explodes: Capitulation?

Meanwhile, on Friday, volume turnover in the S&P 500 Index ETF (SPY) spiked to its highest levels since November’s market bottom. Similar volume spikes have proven to be a sign of capitulation and have marked several market bottoms.

Image Source: Zacks Investment Research

AI Earnings Remain Robust

Despite geopolitical tensions and market volatility, earnings from leading companies remain very robust, especially in AI and AI-adjacent stocks. For instance, last week Micron (MU) reported record revenue that jumped 196% year-over-year. The company cited booming AI demand for its high-bandwidth memory (HBM) product and issued very strong Q3 revenue guidance.

Image Source: Zacks Investment Research

Meanwhile, other AI-related companies such as NVIDIA (NVDA), Broadcom (AVGO), and Dell (DELL) also handily beat Wall Street expectations and raised forward guidance. In other words, the fundamentals beneath the ugly geopolitical headlines remain robust.

Bull Markets Climb the Wall of Worry

According to several sentiment indicators, like the CNN Fear & Greed Indicator, investors are extremely pessimistic. In fact, the CNN Fear & Greed Index is in “Extreme Fear” territory and has just reached its highest fear level since late last year. As the Nasdaq recovers, bulls that were shaken out will need to buy back stocks, and bears will be forced to cover shorts, adding fuel to the fire.

Image Source: CNN

Historical Precedent: Lots of Room Higher

The internet boom of the late 1990s is the closest precedent that investors have to the current AI revolution. After the Netscape IPO in late 1995, the Nasdaq ripped 90%, found trouble 3 years in, then continued its rampage higher, finishing up 402% since the historic moment. Concurrently, the Nasdaq has ripped 90% in the three years since the ChatGPT debut, and recently hit some turbulence. Will history repeat? If the precedent holds true, there is a lot more room for the Nasdaq to move higher. (Source: Ryan Detrick, Carson Investment Research)

Image Source: Carson Invesment Research

Valuations are Attractive

Tech stocks remain extremely cheap. Today, the QQQ forward P/E ratio is 21.95x. For context, during the 2000 internet bubble peak, QQQ’s forward P/E was north of 100x!

Image Source: MacroMicro

Bullish Seasonality

Stocks tend to gain steam as spring begins. Over the past 20 years, QQQ has been green in April ~75% of the time.

Image Source: Unusual Whales

Conclusion

With a recent stop run, continued robust earnings growth, and an attractive valuation, QQQ provides an asymmetric long setup versus Friday’s lows. More aggressive investors may can trade the ProShares UltraPro 2x QQQ ETF (TQQQ) for more leverage.

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Dell Technologies Inc. (DELL): Free Stock Analysis Report

Micron Technology, Inc. (MU): Free Stock Analysis Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

Broadcom Inc. (AVGO): Free Stock Analysis Report

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ProShares UltraPro QQQ (TQQQ): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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