The charts show a tech breakout that can continue over the next 6-12 months, says Katie Stockton

The Invesco QQQ ETF, tracking the Nasdaq-100 Index, has confirmed a breakout to new all-time highs above $539, indicating renewed long-term momentum and a potential measured move to $602, representing approximately 9% upside over the next six-to-twelve months. Despite QQQ's significant outperformance against SPY, technical indicators suggest the QQQ/SPY ratio is deeply overbought, with roughly one-third of S&P 500 tech stocks flashing short-term "sell" signals. This points to a likely two-week correction for the technology sector and QQQ, leading analysts to advise against chasing the rally and instead recommend waiting for a pullback, potentially to the $532 support level, for new exposure.

Analysis

The Invesco QQQ ETF has confirmed a significant technical breakout, closing above its December and February peaks around $539. This move is supported by a bullish whipsaw in the monthly MACD indicator, signaling a resumption of its multi-year secular uptrend and establishing a measured price objective of $602 over the next six-to-twelve months, which represents approximately 9% upside from current levels. Since its April low, QQQ's outperformance versus the SPY has reached approximately 7%, driven by its heavy concentration in technology stocks. However, this outperformance has pushed the QQQ/SPY ratio to a deeply overbought state, meeting resistance from its 2021 peak. Concurrently, technical exhaustion is evident within the technology sector itself, as DeMark Indicators suggest large-cap tech is overdone, with roughly one-third of the S&P 500 tech components flashing short-term "sell" signals. These indicators collectively point to a probable two-week corrective phase for the sector and QQQ, suggesting that a counter-trend pullback is likely before the next leg up.

Key Decisions for Investors

• While the long-term outlook for QQQ is constructive following its breakout, investors should anticipate a near-term pullback due to significant overbought conditions and technical exhaustion signals in the technology sector.
• It is prudent to avoid chasing the rally at current prices and instead wait for excesses to be absorbed; a more attractive, lower-risk entry point for initiating new positions may present itself near the $532 support level, which would fill the June price gap.
• Given the QQQ/SPY ratio is at a key resistance level, tactical investors might consider a short-term moderation in QQQ's outperformance relative to the broader market as a potential theme for positioning.