The NASDAQ is venturing into potential treacherous territory. The technology-heavy index is dangerously close to breaking support at 10,250. If the technical bottom for 2022 gives way, then the NASDAQ is just an express trip away from challenging 10,000.
Ten-K could be as psychologically important as it is a keystone technically. Ten thousand is the last stop before the NASDAQ enters into the price valley created by Covid in 2020. Breach, and close below 10,000, and the index could shave off another 15 percent, in our technical opinion.
We aren’t at midnight yet, but in the event the market continues to swoon, investors should craft a plan of action if the under 10k storm materializes.
ProShares Short QQQ (PSQ) is a potential hedge against the NASDAQ 100 continuing its slide. PSQ’s objective is to deliver the opposite performance of the NASDAQ 100 on a daily basis. For example, if the NASDAQ 100 loses 1 percent, then PSQ should gain roughly 1 percent. Of course, the inverse is true if the NASDAQ 100 moves higher.
The inverse ETF’s chart hints at a potential relief rally as PSQ is closing in on an overbought relative strength index score. As of now, it is our opinion that upside for the NASDAQ could be limited. Remember, if the NASDAQ 100 goes up, then ProShares Short QQQ will lose value.
However, a relief rally could provide investors an opportunity to hedge at a better price with PSQ while limiting potential losses. The inverse index ETF has dual levels of support between $14.15 and $14, where support and the 50-day moving average essentially meet. Our downside target would be a close below $13.25.
It is our opinion that the real PSQ benefit is not found in limited downside, it’s the opportunity to offset a wave of losses if the NASDAQ crashes below 10,000. Like insurance, you don’t want to use it, but man is it necessary when emergencies materialize. For a small downside cost, that’s exactly what ProShares Short QQQ (PSQ) could provide.