These are the support levels in QQQ ETF to look for as volatility picks up, according to the charts

Todd Gordon of Inside Edge Capital maintains a bullish long-term outlook on the AI-led market rally, anticipating continued upside in holdings like Vertiv, MP Materials, Rocket Lab, and Bloom Energy, despite upcoming Fed rate cuts, Q3 earnings, and geopolitical tensions. To mitigate short-term volatility, he recommends implementing downside protection through October via a put spread on the Nasdaq-100 ETF (QQQ), specifically buying the $580 strike and selling the $560 strike for October 31st. This strategy aims to hedge against a potential break below QQQ's 50-day moving average at $580, while preserving long positions and their favorable cost bases.

Analysis

The market maintains a "moderately positive" outlook, driven by an AI-led bull market, despite impending Q3 earnings, a Federal Reserve rate cut, and geopolitical tensions between the US and China. The analyst holds specific long positions in Vertiv (VRT), MP Materials (MP), Rocket Lab (RKLB), and Bloom Energy (BE), all exhibiting strong positive sentiment, anticipating significant additional upside. These holdings are viewed as key beneficiaries of the AI buildout and domestic focus on energy, materials, and semiconductors.

However, short-term volatility and downside risk are acknowledged, particularly concerning the Nasdaq-100 ETF (QQQ). A key technical concern is a potential break below QQQ's 50-day moving average, currently at $585, with a critical support level identified at $580. A failure to hold this level could lead to a drop towards the $537-$541 breakout zone, coinciding with the rising 200-day moving average.

To mitigate this short-term risk, a tactical put spread on QQQ is recommended for October 31st. This involves buying the $580 strike put and selling the $560 strike put, costing $3.20 per spread, with a maximum profit of $1680. This strategy aims to provide protection if QQQ breaks below $580, targeting the August double bottom support at $560.

The analyst, while implementing this "insurance" trade, remains optimistic that the AI-fueled bull market will power to new highs by year-end, suggesting the hedge may ultimately not be needed. This approach allows investors to protect against potential short-term drawdowns without dislodging favorable cost bases on long-term positions and achieving long-term capital gains status.

Key Decisions for Investors

• Consider implementing tactical downside protection, such as the described QQQ put spread, to mitigate short-term volatility while maintaining long-term AI-related growth positions.
• Monitor key technical levels for QQQ, specifically the 50-day moving average at $580 and the $560 support level, as potential triggers for hedging adjustments.
• Evaluate the cost-benefit of hedging strategies against potential long-term capital gains, especially for core holdings with strong cost bases, as a means to navigate market uncertainty without liquidating positions.