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3 Reasons Why the Invesco ETF (QQQ) Can Outperform the Stock Market This Week

Last Updated September 23, 2020 1:10 PM
Nicolas Chahine
Last Updated September 23, 2020 1:10 PM

This week there is an opportunity for the Invesco QQQ Trust (NASDAQ:QQQ) to out-perform because of the earnings earnings of lineup of major blue-chips like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).

The Nasdaq hosts some of the most exciting companies in the world, and this often translates into big gains during bull markets. This year, QQQ out-performing the S&P 500 Index by about 20% so it has momentum on its side.

Just because the markets have been in an expansion cycle it doesn’t mean it is ending soon. Yes, there are a few nagging risks like the geopolitical spat between the U.S. and China, not to mention Brexit. But on the other hand we also have the world’s leading companies potentially delivering great results.

There are risks in the QQQ

Last week Netflix (NASDAQ:NFLX) reported a less-than-stellar quarter and after a brief celebratory spike, the stock fell apart. This is not necessarily the boiler plate reaction for the next big ones to follow. NFLX had specific issues and they missed on their growth metrics. That is a cardinal sin for a growth stock.

Microsoft and Amazon, on the other hand, have much better fundamentals and this is the first reason why the QQQ should out-perform. Most mega-caps that make the QQQ stock have stronger fundamentals so investors will have more conviction in them.

Netflix’s earnings report disappointed investors. The stock is struggling to find its footing. | Chart: Tradingview

Apple (NASDAQ:AAPL) for example still sells at a 20 trailing price-t0-earnings ratio and it is at an all time high. Most QQQ leaders generate a ton of cash and they have proven financials to sustain their future plans. So in spite of the looming risks, the mega-tech fundamentals should also lend support. And the fact that investors have this support makes up the second reason why QQQ is likely to out-perform here.

QQQ has help

The third tailwind that QQQ has comes from governments. In addition to company-specific fundamentals, global central banks are committed to keeping this expansion cycle going. Rates are very low so money is cheap and companies will want to spend it on technology. We have several migration trends into cloud and e-retail and this directly benefits companies in the Nasdaq. Based on these factors, QQQ has an easier upward path than downwards, and earnings are good catalysts for it.

This month, the QQQ has set a trend of higher-lows attacking the $195 per share neckline. This has been resistance for the last few attempts but now the tide could be shifting. If the bulls can take it out, QQQ can rally another $9, based on the technical indicators. The QQQ stock price range has tightened into a point so a move appears likely. If MSFT and AMZN earnings are well received then the bulls should have the edge.

QQQ is up 24% year-to-date. This next round of earnings maybe bring more out-performance. | Chart: Tradingview

Otherwise, if these two disappoint, there are more opportunities to come but the bulls will need to hold above $190 in the process. Else they risk testing recently lows near $186. The QQQ bulls will not be shy about holding their longs through the next two weeks. After Microsoft and Amazon report earnings, we have a slew of giants cued up for the next two weeks. Any slippage this week should not have drastic effects since there are so many more at-bats still to come.