Nasdaq 100 Got You Bearish? The SQQQ Inverse ETF Is Showing Signs Of Strength

ProShares UltraPro Short QQQ SQQQ was surging over 7% higher Friday, in a rebound from Thursday’s trading session, which saw the ETF open higher before plunging 14.2%.

SQQQ is a 3X leveraged ETF that tracks the movement of the Nasdaq 100 inversely. The Nasdaq 100 index is heavily weighted with stocks in the technology and telecommunication sectors, with Apple Inc. AAPL, Microsoft Corporation MSFT and Amazon.com Inc. AMZN holding the three top spots.

The Nasdaq 100 enjoyed a bullish day on Thursday after gapping down to start the session following consumer price index data that showed inflation is refusing to budge. The gap down became a buying opportunity for bullish traders because from a technical standpoint, many big-tech stocks reached near oversold levels and hit support levels on their charts, simultaneously and looked set to bounce.

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A 15.23% drop in the Nasdaq 100, which occurred between the CPI report for August on Sept. 13 and the report for the month of September on Thursday, could also have priced in the stubborn 8.3% inflation rate.

For now, with Friday's retracement lower, it appears the bullish price action on Thursday was merely a short bull cycle within the longer-term downtrend. For technical traders, when Amazon showed comparative weakness to the broader market on Thursday, it signaled caution.

The SQQQ Chart: SQQQ has been trading in a consistent uptrend since Aug. 16, when the S&P 500 and the Nasdaq 100 reversed into downtrends. SQQQ’s most recent higher high was formed on Thursday at $69.35 and the most recent confirmed higher low was printed at the $50.54 mark on Oct. 6.

• On Friday, SQQQ may have formed its next higher low at the $57.05 low-of-day. If the theory holds true, SQQQ is likely to form a higher high over the next few trading days, indicating major tech stocks are likely to trade lower overall.
• As the saying goes “the trend is your friend, until it’s not” and traders and investors who are bullish on technology and communications will likely want to wait for signs the uptrend on SQQQ is over. This could come in the form of the SQQQ negating its uptrend by printing a lower high on the daily chart.
• If SQQQ closes the trading day near its high-of-day, the ETF will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Monday. If the stock falls to close the trading session with a significantly lower wick, the temporary top may be in, which could indicate the SQQQ’s uptrend is over for the time being.
• SQQQ has resistance above $63.94 and $68.88 and support below at $58.90 and $55.84.
• For traders anticipating a bullish reversal in the Nasdaq 100, ProShares UltraPro TQQQ TQQQ positively correlates to the Nasdaq 100.