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Data Shows QQQ Has Declined 10% From January High 91% of the Time

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Seasonality suggests a potential pullback.

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Of all the stock market statistics floating about, this one might be the most amazing: The QQQ has made 1.23% in nine of the last 10 years (including 2012). Over this time we have had two wars, one Great Recession and a downgrade of so called "risk-free" U.S. bonds to AA. The list goes on. However, even during these up years, the QQQ typically experiences some weakness which starts in January. Let's take a closer look.



In the beginning there was the Dow, S&P and eventually the NASDAQ. The NASDAQ index started on February 5, 1971. The NASDAQ 100 tracking index of the top 100 largest non-financial securities on the NASDAQ board started on January 31, 1985. On March 10, 1999 the QQQ commenced trading.

So there is a lot of history before 2000 when it comes to the NASDAQ 100, the NASDAQ and stocks in general. There were plenty of times stocks bottomed in January before the QQQ was born. One example would be 1995.

This indicator is somewhat similar to the "stocks always go up in the pre-election year" that you always hear being bandied about. If you go back far enough, you will find there were actually plenty of pre-election years which were down from 1800-1940.

So, having gotten the necessary disclaimers out of the way, let's dig in.

2000 Taking a look at the table, the QQQ went up 23.44% from the January 24, 2000 high to its March 24, 2000 high. However, there were not one but two possible times to short the QQQ within January alone. From the January 3, 2000 high to the January 6, 2000 low the QQQ dropped 17%. From the January 24 high to the January 31 low the QQQ dropped 14.4%. So you could have made a couple of double-digit gains shorting in January or even 44.43% if you could have held throughout the final 44.31% blow off top from the January 31 low to the March 24 highs.

2001-2006 This was the golden age of this indicator. January was the best time to short the QQQ each of these years. The only anomaly during this period was that the intraday low in 2003 was in February which was the sole time the QQQ bottomed in the first two months of the year. However, the closing low was March 11.

2007 There was a double top on January 16/February 22. The February high was 0.33% higher than the January high. This was the only time shorting the QQQ at the January high did not lead to a double digit drawdown.

2008 The Indicator went back on track. The high of the year was in January and the downside was a doozy.

2009 Somewhat similar to 2007 in that there was a January / February double top of less than a third of a percent difference.

2010 This one requires a bit of explanation. From the January 19, 2010 high to the February 5 intraday low of $42.12, the QQQ dropped 9.69%. So there was indeed some weakness which started in January. However, this was short-lived. The QQQ rallied 20% to go 8.6% above its January high. It then retested its February low. On July 1 the QQQ traded at $41.77 which was 0.83% below its February low. This was the first time the QQQ went 0.33% over its January high in 10 years. However, there was a 9.69% drawdown in January and if you bought at the February low you had an excellent entry point with minimal downside.

2011 This one didn't work as well as the others. The QQQ kept on rallying until February 16 when the QQQ hit $59.04. It then went into a trading range until July. The year high was $59.83 so it didn't go up too much past its February high. From its January high to its July high, the QQQ went up an additional 4.32% which wasn't too bad. And the double digit downside from the January high occurred once again.

Summary

1. This indicator is not robust and will eventually fail.

2. The significance of the January peak seems to be eroding in recent years.

3. This indicator will not tell you when the QQQ will peak in January. Last year was the only time the Qs hit new highs past January 24. This was a warning sign that something was different.

4. The QQQ has experienced a double-digit correction from its January highs every year except for 2007.

5. The earliest intraday low of the year was on February 13 (in 2003). The earliest closing low was on March 7 (in 2007).

6. There was a 12.3% QQQ correction each year. In 2007, there was a 12.3% correction from July 19 to August 16 (which was not the year low).

7. Every single year had a 14.74% correction at least start during the year (in 2007 a 53.4% bear market started on Halloween).


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