The Invesco QQQ ETF has plunged and moved below the 200-day moving average as concerns about the equities market rose. The fund, which tracks the popular Nasdaq 100 index, dropped to a low of $480, down by almost 10% from its highest level this year. So, what next for the blue-chip tech ETF?
QQQ ETF technical analysis
The daily chart shows that the QQQ ETF surged to a record high of $540 in February and then suffered a harsh reversal to the current $490. It formed a double-top chart pattern at around $540, and has now retreated below the neckline at $499. A double top is one of the most bearish patterns in the market.
The QQQ stock has crashed below the important support at $500, the highest swing in July 2024. Most importantly, it has moved below the 200-day Weighted Moving Average (WMA) and is now attempting the 200-day Weighted Moving Average (WMA).
The WMA indicator is seen as a more accurate moving average because it focuses mostly on the most recent period. Moving below that level is usually a bearish sign in the market.
Further, the Relative Vigor Index (RVI), Percentage Price Oscillator (PPO), and the Awesome Oscillator (PPO) have all pointed downwards.
The index will likely continue falling as sellers target the extreme oversold level of the Murrey Math Lines point at $453. That price action would point to about 7.5% decline from the current level.
On the flip side, a move above the crucial resistance level at $515 will invalidate the bearish thesis in the market.
Why the Nasdaq 100 index has crashed
There are three main reasons why the Nasdaq 100 index has crashed in the past few weeks. First, the most obvious reason is that Donald Trump has decided to go full-throttle with implementing tariffs against key allies like Canada and Mexico and foes like China. These 25% tariffs will likely lead to substantial challenges for companies and individuals.
Trump is not backing down as he has promised to implement reciprocal tariffs in April. These tariffs involve implementing similar tariffs to those other countries levy on the United States. While some tariffs may drop in this case, there is a likelihood that many others will go up.
US GDP growth concerns
Second, the QQQ ETF has crashed as concerns about the US economy remain, with a model by the Atlanta Fed estimating that the economy will contract by 2.4% in the first quarter. This model uses data from the Census Bureau, the Institute of Supply Management (ISM), and the Bureau of Economic Analysis (BEA) to predict the economic growth in a period.
A weak economic growth is, in theory, bullish for the Nasdaq 100 index because it signals that the Federal Reserve will need to act and start cutting interest rates. Indeed, the falling bond yields and the US dollar index signal that most analysts anticipate that the Federal Reserve will deliver more cuts this year.
The risk this time is that the economy is contracting as inflation remains elevated. Recent data showed that the headline consumer price index (CPI) rose to 3% in January.
AI bubble starting to burst?
The other main concern is that the AI industry that has boosted US tech stocks in the past few years is starting to burst as growth slows. One key issue is that Chinese companies like DeepSeek, Tencent, and Alibaba are using fairly cheap technology to build highly advanced AI models.
These fears explain why the top AI stocks have started to plunge. Palantir stock price has crashed by about 35% from its highest level this year, while NVIDIA is down by 26%. Other smaller AI stocks like SoundHound and C3.ai have plunged by double digits. Therefore, the market will likely need a new catalyst to continue doing well.
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