ProShares UltraPro QQQ (TQQQ) ETF: Fortune favours the brave

The ProShares UltraPro QQQ (TQQQ) ETF has been one of the top-performing funds this year. The stock has jumped by more than 150% this year, outperforming Invesco QQQ, which has soared by over 42% this year. Its total assets have jumped to over $19 billion.

The Magnificent 7 rally

ProShares UltraPro QQQ is a relatively popular exchange-traded fund that aims to achieve three times the returns of the Nasdaq 100 index in a single day. Nasdaq 100 is an index that tracks the biggest 100 technology companies in the US like Microsoft, Nvidia, Tesla, and Google.

The TQQQ ETF has therefore soared this year because of the strong performance of the so-called Magnificent 7. These are large companies like Apple, Microsoft, Nvidia, Meta, Alphabet, and Tesla.

This growth has happened because of the relatively resilient corporate earnings by big technology companies. It has also benefited from key themes like artificial intelligence.

The biggest concern among investors is whether these stocks have more room to run. For one, there are signs that the electric vehicle bubble is bursting, which could affect a company like Tesla.

Also, there are concerns that the AI hype could start to fade. Indeed, many AI companies like C3.ai and Palantir have all retreated recently. 

Federal Reserve rate cuts

Still, I believe that technology stocks will likely continue doing well in the coming months. For one, there is a likelihood that the Federal Reserve will pause on its hikes this year. 

The most recent economic data showed that American consumer confidence dropped to 106 in August. In the same period, the unemployment rate rose to 3.8%. Delinquencies on consumer loans and mortgage payments have jumped. 

Therefore, my base scenario is where the Fed leaves rates unchanged for the rest of the year and then starts cutting them in 2024. In most cases, technology companies do well in a period when the Fed is slashing rates.

TQQQ ETF stock technical analysis

The daily chart shows that the TQQQ ETF has supportive technicals. The stock found a strong support at $35.44 on August 18th. It has now bounced back and flipped the important resistance at $38.78 (August 16th high) into support.

TQQQ is also being supported by the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved above the neutral point at 50. Therefore, the outlook for the index is bullish, with the next important resistance level to watch being at $47.30. In all, the fund could jump to $50.

In the case of TQQQ and other leveraged ETFs, I always recommend allocating just a small portion of your portfolio in it. Most of your funds should be in either QQQ or QQQM, which track the Nasdaq 100 index.

The post ProShares UltraPro QQQ (TQQQ) ETF: Fortune favours the brave appeared first on Invezz.