I have been thinking about this chart of QQQ3 (Nasdaq Tracker x 3, daily rebalanced), and I think it is a pattern called a bull hook, which I first came across nearly 60 years ago in a frenetic bull market in Australian shares, called the Poseidon boom. A bull hook is a strong pattern suggesting there is plenty of life left in this bull market.
Technology tracker times 3, TECL and semiconductor tracker times 3, SOXL, have similar-looking charts.
TECL has a super-strong chart with an explosive breakout from over three years of sideways trading. A purchase of these shares looks like a licence to print money.
Most explosive of all is this chart of a leveraged ETF tracking the performance of semiconductor shares. It has blasted higher from some five years of consolidation. If I were to guess where this is going, I would say $500, here we come.
This is pure charting, but in my experience, if blended with observation and common sense, charts work well. It is no secret (a) that the semiconductor market is experiencing an incredible boom and (b) that there are many sceptics out there convinced that a cyclical peak is looming and it will all end in tears. Scepticism is good. It is when everyone is bullish that we need to watch out.
You can pick almost any semiconductor company at random, and the shares are exploding higher. You can pick any hardware share, and the price is skyrocketing. I am even beginning to wonder if my caution on many software businesses is overdone. There is a tsunami of technological progress taking place out there, driven by the insatiable demands of AI.
You could probably chuck a pin at this market and make money, so it is a great time to buy ETFs tracking all this with leverage built in.
Share Recommendations
QQQ3
TECL
SOXL
Strategy – Throw Caution To The Winds
Because of stupid nanny-state European rules, you may find it hard to buy TECL and SOXL. It depends on your broker. Fortunately, there is nothing wrong with QQQ3. Below is what AI says about QQQ3.
QQQ3 has delivered an astonishing cumulative return of roughly 13,000% (a 130-fold increase) since its inception on December 13, 2012, resulting in an annualized average return of over 25%. However, its performance is highly volatile, driven by the daily 3x leverage of the Nasdaq-100.
Key Performance Milestones
- Inception to Date: The WisdomTree NASDAQ 100 3x Daily Leveraged (ticker: QQQ3) has seen incredible, compounded multi-decade success due to the massive bull run in large-cap technology stocks, turning a theoretical $10,000 investment into well over $1.3million.
- 1-Year Performance: Over the past 12 months, the fund has surged between 116% and 133%, reflecting the broader momentum of tech indices.
- 3-Year Performance: Yields an annualized cumulative gain of about 66% to 80%, depending on the exchange and currency pricing tracked.
The Leverage Caveat
While the long-term compounding is remarkable, QQQ3 is an Exchange Traded Note (ETN) designed to deliver 3 times the daily performance of its underlying benchmark. Because of daily rebalancing and “volatility drag,” extended holding periods can result in major mathematical deviations from exactly three times the Nasdaq-100’s performance. During market drawdowns—such as the roughly 80% drop in 2022—leveraged assets suffer severe and sometimes unrecoverable losses.
Due to these risks, it is primarily utilized as an active trading tool rather than a long-term “buy-and-forget” investment.
The key here is these supposedly unrecoverable losses.
Losses in 3x leveraged funds tracking the Nasdaq-100 (commonly known as QQQ3 or TQQQ) can become unrecoverable due to volatility decay, the need for larger break-even returns, and leverage destruction during severe, prolonged market downturns. [1, 2]
1. The Asymmetry of Math
Even a standard 1x fund requires a larger gain to offset a loss. For example, if a standard index drops 50%, it requires a 100% gain to break even. However, because QQQ3 amplifies losses by 3x, a 50% drop in the underlying index results in a devastating 90% loss in QQQ3. To recover from a 90% loss, the fund requires a massive 1,000% gain.
2. Volatility Decay (Beta Decay)
QQQ3 resets its 3x leverage multiplier on a daily basis. In volatile, sideways, or choppy markets, this daily reset causes “volatility decay”.
- The mechanism: Every time the underlying index fluctuates—going down one day and up the next—the leveraged fund mathematically loses money, even if the index eventually returns to its exact starting price. Over long periods or in a turbulent bear market, the fund continuously erodes from the inside.
I find this puzzling. Is QQQ3 up 13,000pc since 2012, or isn’t it? When I look at the price chart, it clearly is. Sounds like real money to me. I read an excellent analysis of all this called ‘Debunking the Leveraged ETFs are not a long-term hold myth’. The reassuring conclusion is quoted below.
There is not a single 30 or 40-year timeframe since 1927 where DCAing into either 2x SPY or 3x SPY lost money compared to just buying SPY, even when holding through the depression in the 1930s, 1970s stagflation, the lost decade from 1999 to 2009, or ending the period at the bottom of the Covid-19 crash.
Past performance does not guarantee future results and all that stuff, but it does seem like having at least a portion of your portfolio in leveraged index funds is a great way to increase wealth, with the rewards heavily outweighing the risks. The hard part is having to stomach watching the extreme portfolio drawdowns during market corrections.
So forget the doom and gloom and feel free to buy, hold or best of all, dollar cost average, these wonderful wealth-creating ETFs.
