As I reviewed the charts of the Nasdaq 100 with my viewers during webinar today, I started to wonder how the equal-weight version was stacking up against the NDX ETF (QQQ). Typically the equal-weight versions do better over time than their cap-weighted counterparts. (Carl wrote an excellent article on this that you can read here.) However, they aren't right now.
Let's start with the QQQ. It is a bearish chart, to be sure, but notice that the 50-EMA crossed above the 200-EMA back in early April and consequently the upcoming new 20/50-EMA negative crossover will occur above the 200-EMA. That would trigger an Intermediate-Term Trend Model (ITTM) Neutral signal.
A comparison to the QQEW displays a bear market configuration with the 50-EMA below the 200-EMA; in fact, it missed out on the 50/200-EMA positive crossover altogether. A negative 20/50-EMA crossover would align the ITTM to a SELL, not Neutral, signal. Notice that in the last rally, relative strength declined. In a healthy rally, equal-weight ETFs should outperform. As prices topped, QQEW gained some strength. Smaller caps held on to the top as the large caps accelerated lower. Next time, we need to see QQEW gaining relative strength throughout the rally. Smaller caps need to contribute and large caps need to not poison the well.
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Technical Analysis is a windsock, not a crystal ball.