How the QQQ Could Drop More Than 40% From Here, Even If It Hits a New All-Time High First

Mentioning the possibility of a 40% drawdown in the Invesco QQQ Trust (QQQ) gets you immediately labeled as a “doomer.” I’ve experienced that many times, including back in 2020. 

My rationale then, as now, had nothing to do with news headlines, or even valuations or the elusive “fundamentals.” 

Instead, my concern was and is that many areas of the stock market appear too risky to ignore. After 15 years of artificial liquidity pumped in by global central banks, investors have been conditioned to believe tech valuations operate under special rules of physics where every decline is an automatic bargain. 

As someone who has spent 40 years managing money by charting price structure rather than buying into Wall Street marketing, I view things differently. When a hot technology like AI sees investor mania start to wane, it doesn’t settle into a peaceful plateau.It drops back down like an elevator.

A 40% haircut from current levels is not my “base case” for the QQQ, but it is a real possibility. 

This is the weekly chart of QQQ. The volatility might just be a passing phase, but I suspect it’s more likely to be a prelude for what’s to come. 

$675 is the current level as of the morning of Nov. 11. I’ve drawn two arrows downward to mark logical destinations for QQQ. 

In the picture, it continues breaking down below the support area and dives to $540-$550, around a 20% decline from here. Note that QQQ is already down around 12% from its all-time high level.

If that were to occur, it could happen quickly, since there’s not much history in terms of past areas of technical “traffic.” That’s because the past two moves up through that area were lightning-quick. 

The next lower area I’ve marked is around $390-$400. So about a 40% drop from here, and nearly 50% from the 2026 all-time high.

When we realize that $398 was where QQQ lifted off from just 19 months ago, is it impossible to foresee a return to that level? After all, the AI trade drove it, and concern about the AI era producing underachieving returns on its gigantic capital expenditure spree would most likely be the culprit on the way down. Last week’s U.S. election results, which have raised concerns about government support for AI and data centers, could also stoke a quick down move.

What Could Stop It?

I’m a risk manager, and always have been. So in my book, you never bet all-in on a single outcome. My biggest investing misjudgements were assuming “now is the time” for a market meltdown, when it turned out there was still a bit of gas left in the bull market’s tank.

So could we see a continuation of this vicious post-election bounce? Sure. How far could it go? $765, that previous high, is the quick and dirty target. That’s 15% higher from here. 

How I’m Playing the QQQ Here 

I own “long” and “inverse” positions in tandem. ETFs on major indexes long, and put options and/or inverse ETFs to counter them.  

My “arbitrage” strategy is to take, say, the SPDR S&P 500 ETF (SPY) and counter it with the ProShares Short Russell 2000 ETF (RWM), which shorts small-cap stocks. My goal is to play offense and defense at the same time, but without betting against myself. 

Those dip-buying rebounds have reached the point of feeling effortless. I’ll bet traders are using AI agents to buy automatically for them now. 

But as I see it, using my standard discipline in this non-standard market, the charts are telling an entirely different story. Protect your capital first, establish your floor, and let the market work out its own excess.

Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, Barchart columnist, and straight-talker. Download his new free e-book on hedged bond investing for retirement at ETFYourself.com. His research and model portfolios are at ROAR.PiTrade.com.  

On the date of publication, Rob Isbitts did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.