Social Media/Nasdaq Ratio Look:
The Nasdaq did demonstrate some decent relative strength Monday, but it has been damaged to the tune of being off 8% from most recent all time highs, compared to the S&P 500 which sits just 6% from its own highs. The losses have really accelerated since the week ending 10/5 when the tech heavy benchmark slipped more than 3%, and the S&P 500 lost less than 1%. We have highlighted the weakness in the semiconductors which has been ongoing for months, and the recent turn south of the software names. Today we will examine the social media names compared to the Nasdaq. Below is the ratio chart and it is easy to see the vulnerability of the SOCL. The ETF is now 25% off most recent 52 week highs and has dropped 11 of the last 18 weeks, with 4 of the up weeks gaining less than 1%. TWTR and FB make up 23% of the fund, and are off 39 and 29% from their most recent highs. FB is holding onto a double bottom at the very round 150 figure from March this year, and TWTR is doing the same from 26 this April. There is no reason to rush in here and be a hero, until one sees a catalyst (FB did record a bullish harami cross Monday). Wait in the very least for a bottoming candlestick.
Of course the domestic technology have been hit pretty hard recently, but some European leaders have been cut down to size as well. The German software name SAP which is the largest component in the EWG, which is now down a remarkable 23% from most recent 52 week highs, was acting sturdy as it was at all time highs as the ETF floundered. Below is the chart and how it was presented in our Technology Report from 9/28. It broke above a bullish ascending triangle formation on huge trade on 9/25, but the breakout fell apart quickly, and we were obviously WRONG with this set up. One can learn from your losses and here it was wise to take your stop and move along as we know the best breakouts tend to work out right away, and those that fail are red flags (it was no surprise that the 10/18 earnings reaction was lower by nearly 8%). Former best of breed PHG was hit hard today after earnings too, and now sits it bear market mode lower by 22% from recent highs. Tonight LOGI reports after the close and investors have been waiting for these reports to come rolling in. Will it differentiate itself from its European generals?
Often on tough tapes it pays to examine which names exhibited good relative strength. They are often tells that theses names may outperform once a rally resumes. Look for stocks that were firm on soft tapes, that did not receive upgrades, M&A talk, etc. Discover names that rose on plain generic, vanilla buying. If they show bullish candlesticks at critical junctures, even better. Below is the chart of CTRL and how it appeared in our 10/16 Technology Report. There was a “cluster of evidence” here, meaning multiple positive occurrences, as it filled in a prior gap, and was finding support at its 200 day SMA aside from the good action on 10/15 which rose by more than 2% as the Nasdaq dropped almost 1%. The stock still has some work to do but it has gained 5% since the recommendation.