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(Yong Hian Lim/Getty Images/iStockphoto)
(Yong Hian Lim/Getty Images/iStockphoto)

ETFs

Nasdaq 100-mimicking ETF about to enter its seasonal sweet spot Add to ...

The best time during the year to own Powershares QQQ Trust Units is from Dec. 20 to Jan. 19.  Units are better known on Bay and Wall Streets as "the Qubes" or "the Q's". The Qubes track the NASDAQ 100 index. According to EquityClock.com, average return per period during the past 28 “sweet spot” periods was 4.8 per cent. The trade was profitable 85 per cent of the time and outperformed the S&P 500 index 79 per cent of the time.

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Several annual events recur at this time of year to prompt the trade. The period is part of the Christmas season when equity markets typically benefit from the Santa Claus rally from Dec. 15 to Jan. 3. In addition, a series of conferences are held in early January that prompt investor interest into important components of the NASDAQ 100 index. Largest sector weights in the index are technology (57 per cent), consumer discretionary (21 per cent) and health care (13 per cent).

The technology sector has the greatest influence on the index. The sector gained an average of 3.3 per cent during the past 20 periods from Jan. 1 to Jan. 19, partially in anticipation of seasonally strong fourth-quarter results related to Christmas buying of consumer electronic goods and partially in anticipation of new consumer electronic products revealed at the Las Vegas Consumer Electronics Show. This January, the annual show is held earlier than usual - from Jan. 7-10.

Health care has a smaller weight in the index, but has an equally important influence on performance. Most of the equities in the health-care sector are biotech stocks that have a period of seasonal strength from Dec. 16 to Jan. 22.  Average return during the past 20 periods for the biotech sector was 7.0 per cent. Two health care conferences are scheduled in mid-January where important news related to new drugs and health care equipment is revealed. Health care stocks move higher in anticipation of the events. The largest investment health care conference of the year is hosted by JP Morgan in San Francisco in January. This year, the conference is held from Jan. 13-16. Simultaneously, the annual Biotech Showcase is held in San Francisco from Jan. 13-15. Over 600 companies are scheduled to present.

What about this year? Technical profiles for Powershares Trust Units (QQQ), the technology sector, and the biotech sector already are favourable and present a positive setup for the upcoming period of seasonal strength. All are in intermediate uptrends. The “Q’s” units also trade above their 20, 50, and 200-day moving averages and show positive strength relative to the S&P 500 index.

Canadian investors can buy the “Q’s” in two ways: directly through U.S. exchanges in U.S. dollars using the symbol QQQ or indirectly through the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (ZQQ). The latter tracks the NASDAQ 100 Index, is hedged against fluctuation in the U.S. and Canadian dollar and is priced in Canadian dollars.

Don and Jon Vialoux are the authors of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. They are also research analysts at Horizons Investment Management, offering research for the Horizons Seasonal Rotation ETF (HAC-T). All of the views expressed herein are their personal views, although they may be reflected in positions or transactions in the various funds managed by Horizons Investment. Horizons Investment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://TimingTheMarket.ca/ and http://EquityClock.com.

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