McClellan Chart in Focus: Too Much Love for QQQ. This week’s chart shows how the number of QQQ shares outstanding varies over time..By Tom McClellan


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June 08, 2018

The FANG stocks have been leading the market higher in 2018, and a lot of traders are choosing to tag along on that trade by buying into QQQ, the ETF which tracks the Nasdaq 100 Index (NDX).  As more traders buy into QQQ, the sponsoring firm (Powershares, part of Invesco) issues more shares in order to keep the share price as close as possible to the net asset value.

This week’s chart shows how the number of QQQ shares outstanding varies over time.  Not surprisingly, it goes up and down in sympathy with price movements.  There is nothing like an uptrend to get traders wanting to buy.  By the same token, there is nothing like a selloff to get them to want to bail out.

Because the numbers for shares outstanding vary over time, we cannot set rigid numbers for what constitutes “high” and “low”.  So I have added 50-1 Bollinger Bands to the plot of the shares outstanding to help with that job.  The “50-1” label means that it is a 50-day lookback for calculating the standard deviation, and also 50 trading days for the moving average (which is not shown).  Then the upper and lower bands are each 1 standard deviation away from that moving average.

Most charting programs will default to 20-2 for Bollinger Band settings, meaning 20 days and 2 standard deviations above and below the moving average.  I have found that the 50-1 setting seems to work well for many sentiment related indicators.

Just recently, the NDX moved up to make an incrementally higher closing high, taking the share price of QQQ along with it.  And that has led investors to chase into the rally, pushing up the number of shares outstanding to above the upper band.  That is a fairly reliable sign that the move for now has gone a little bit too far, and that the risk of a downward corrective move is now much higher.

Tom McClellan
Editor, The McClellan Market Report


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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.