PSQ: Too A lot Quick Promoting Factors To Even Greater Costs For The QQQ (NYSEARCA:PSQ)

With the QQQ lastly making all-time highs, many buyers are questioning if it is actually only a “double top” and time to quick the QQQ by shopping for PSQ.

To reply this, we’ll take a look at investor exercise in PSQ itself, which has guided us earlier than with this query. We’ll replace the identical inside indicators that we offered in our August 29th article which warned towards shopping for PSQ then. That warning prevented a 7.6% investor loss.

Shopping for Ranges in PSQ Are Nonetheless Too Excessive

The chart above reveals common day by day shopping for in PSQ as a p.c of belongings. Regular shopping for ranges are round 10%. At main lows, the ratio can rise to 50% or extra of belongings per day. We use this metric just like the odd lot quick promoting indicators of previous.

There’s a lengthy, eighty-year historical past which reveals that market tops are often preceded by low ranges of quick promoting, whereas main bear market lows occurred throughout excessive ranges of shorting. This exercise is reverse of what you’d need for funding success.

This similar sample is what you discover with the acquisition ranges in PSQ, which is a ProShare ETF that goes quick the QQQ. Excessive ranges of shopping for in PSQ happen close to market lows and low ranges of shopping for happen close to market tops earlier than a serious decline. This once more is the alternative of what you’d need.

Historical past reveals you by no means begin a serious decline when there are excessive ranges of shopping for in PSQ. It signifies that too many buyers predict a decline and for those who consider in opposite opinion, which we do, you are not going to get it.

Utilizing 5 arrows, we have pointed to the degrees of shopping for in PSQ that existed earlier than main declines. Buy ranges had been all the time lower than 10%, generally even lower than 5%. We have indicated with a black circle the present ratio, which is 25%.

In our opinion, this ratio represents far an excessive amount of curiosity by buyers within the quick aspect of the marketplace for the market to be at a high. This means the QQQ is just not making a double high at present ranges, however will go a lot greater. It additionally implies that buyers shouldn’t purchase PSQ presently.

Warning Towards Shopping for PSQ Confirmed by Absolute Shopping for Ranges

At any time when we use ratios available on the market, we like to substantiate the metric with absolutely the values that kind the ratios. On this case, we’ll take a look at the greenback quantity going into shopping for PSQ to see if it too is elevated. The following chart reveals the typical amount of cash shopping for PSQ per day.

Earlier than the 2 prior peaks in QQQ – in the course of the preliminary outbreak of COVID and the start of 2022 – buy ranges in PSQ had fallen to only $50,000,000 a day. These are indicated by the 2 arrows.

The present buy stage is simply over $191 million a day. That is 4 occasions the extent that occurred earlier than the 2 earlier main peaks, and confirms the conclusion of the earlier chart.

There is just too a lot curiosity in PSQ for the market to be on the high. We advise buyers to remain out of this fund in the intervening time.

Greenback Property in PSQ Want To Contract Extra

This chart reveals the greenback belongings in PSQ because the funds inception in 2006. As you may see, there was an enormous surge of cash within the fund in 2022, reaching simply over $2 billion {dollars}. A few of this was resulting from value appreciation of PSQ, however most was resulting from new purchases by buyers.

You’ll be able to see that cash has been popping out of the fund since final October’s value low. It’s now all the way down to $814 million. We do not assume buyers have to fret a couple of market decline till the whole belongings on this ETF have first come again to round 1/2 a billion {dollars}, because it has prior to now (2019-2021).

Worth of PSQ Has To Go Decrease First

This long-term chart reveals the general tendency of the PSQ NAV to erode over time. It additionally reveals the ETF hitting all-time new lows this week, coincidental with the breakout of QQQ to new highs. We absolutely count on this decline within the value of PSQ to proceed whereas QQQ continues to make new highs.

The parallel development strains within the graph present the value band we count on PSQ to observe because it developments decrease. The decrease band could be at $8.50 by January, which might be a decline of 13% from the present value of $9.79.

Abstract

We do not count on a big long-term rally in PSQ, or a big decline in QQQ, till shopping for ranges in PSQ first drop to 10% of belongings or much less. We need to be very clear on this forecast – it is for the long run. Quick time period, with the market closely overbought, there could possibly be three or 4 week rally’s in PSQ. However we count on decrease costs long-term.

Threat Warning

There are distinctive dangers that include investing in PSQ not present in most different ETFs. There’s a fixed downward value erosion that will increase the longer one holds the fund. This comes from what are known as “carrying costs” as a result of truth the ETF should use some type of margin.

This threat is very burdensome now as a result of greater than regular rates of interest created by the FED to battle inflation. Each the ProShares website and the SEC have detailed messages on the inherent dangers utilizing leveraged ETFs.