Stocks are in full-on, bull market fear of missing out mode as the SPDR S&P 500 ETF (SPY) , Invesco QQQ Trust (QQQ) and iShares Russell 2000 ETF (IWM) all appear destined to test their year-to-date volume weighted average price (VWAP) points. Each ETF is within 1.5% to 2% of testing its year-to-date VWAP, and while that is a crucial reference point for someone like me, it's important to note that there isn't any reason price can't soar straight through that point.
From a trading perspective, I've been carrying a position in QQQ since July 19, when the ETF first closed above its 50-day simple moving average. While I sold part of my position into $314.55, a resistance line I've referenced several times over the past week, I took advantage of Wednesday's ramp to sell most of my remaining position. I hate the expression tag end, but that's where I'm at with my trading position in QQQ.
My reasons for selling are that QQQ is quickly approaching its year-to-date VWAP, its declining 200-day simple moving average (SMA), its growing distance from the 21-day exponential moving average (EMA), and because I believe the market has grown far too comfortable with the idea that the Fed will return to a dovish posture within a few months.
When the market is in a bull market across all timeframes, it's not hard to justify staying long until the last possible moment. But because I believe we are witnessing a significant rally amid a bear market, I'm most comfortable cutting longs on strength as investor sentiment swings bullish or at the moment price closes under a 21-day EMA. To me, a 10% rally in QQQ over six days and an overbought T2108 (the percentage of stocks trading above a 40-day moving average) are good enough reasons to adopt a more cautious approach.
Aside from the QQQ, I'm paying close attention to the ARK Innovation ETF (ARK) . While QQQ is within 2% of its year-to-date VWAP, ARKK is about 10.5% from its VWAP. With many ARKK names just beginning to show some strength, I'm not confident how those stocks will perform if sellers return to QQQ over the next week or two. Making things even more challenging is that between 10 and 12 ARKK names are scheduled to report earnings from today through next Tuesday.
The bottom line is I'll feel better about the sustainability of the rally in the Nasdaq (and its prospects for another leg higher) if ARKK and its components can hold and consolidate their gains over the next week and build some support for another drive toward the ARKK year-to-date VWAP near $55.