QQQ Price pops on debt-ceiling relief but downside risk remains high

Summary:

The Invesco QQQ Price surged 4% after Senate GOP leader Mitch McConnell agreed to kick the debt-ceiling can into December.

The Invesco QQQ Price surged 4% after Senate GOP leader Mitch McConnell agreed to kick the debt-ceiling can into December. However, despite the Nasdaq100 tracker (NASDAQ: QQQ) averting immediate disaster and recovering the 100-day moving average, the risk is skewed to the downside.

Risk assets received a welcome boost on the announcement that a historic US debt default has been avoided, for now at least. Senate Republican leader McConnell’s agreement to raise the debt ceiling into December helped QQQ to three days of gains. As a result, the price has recovered over 3.5% from Monday’s $350.3 low. However, the tech-stock ETF still shows a 5% loss from the September high.

Not Out of The Woods Yet

Despite the bounce, the QQQ price is exposed to several risks as we advance. Later today, the Non-farm payrolls data for September will be released. Which, considering the low bar set last month, should show a pick in hiring. The NFP is forecast to show labour participation increased by 490k over the last month, compared to 253k in August. The immediate risk for indices is a larger-than-expected rise in employment which would lend weight to a November taper.

Also, after starting well yesterday, the QQQ price erased almost half of the gains, finishing around $0.90% higher on the day. Subsequently, the daily candle signals the rally is exhausting, indicating a potential reversal. Furthermore, although US sovereign risk has eased in the last two days, it’s still highly elevated, reflecting the short-term nature of the debt-ceiling deal. The market should continue to price in default risk ahead of the December deadline, firming the Dollar and reducing risk appetite. As a result, rallies are increasingly likely to attract sellers as time moves forward.

QQQ Price Analysis

The daily chart shows the QQQ price recovered the 100-day moving average at $358.71 on Wednesday. Subsequently, the price advanced 1.7% yesterday before easing into the close. Notably, the rally faded as it approached the long term uptrend at $366, which now offers resistance. Until QQQ recovers the $366 barrier, it’s vulnerable to a reversal. In that event, the 100 DMA provides the first support level, followed by the trend support at $350 and the significant 200 DMA at $341.

Of course, the NFP could swing the odds back in favour of the bulls. Should the data disappoint, it will soften the Fed’s stance on an early taper. However, the chances of this are slim. Nonetheless, if the QQQ price ends the week back in the uptrend, momentum buying and risk-on sentiment should take it higher next week. Above the trend, the 50 DMA $370 is the next notable resistance.