Group Overview:
Give technology credit overall for not collapsing in the face of its biggest component AAPL sinking a devilish 6.6% Friday after earnings were released Thursday evening. The tech behemoth is now in correction mode down 10% from most recent all time highs, and is on its first 5 week losing in streak in more than 5 years. The Nasdaq bounced precisely off the very round 7000 figure on Tuesday and it did gain 2.6% this week in quiet trade, and still trades below its 200 day SMA which is beginning to flatline, something it did NOT do during the tough periods of February and March this year. On a YTD basis thus far the Nasdaq still has a commanding lead having advanced 6.6%, but more encouraging to me is the action in the Russell 2000. The small cap index, which is often a leading indicator, returned to positive in 2018 after this weeks 4.3% gain and is now higher by .8% in 2018. On its daily chart however it did record a spinning top candle after a 100 handle move since last Friday. Err on the side of caution until the 200 day SMA is recouped.
Keeping an Eye on Semiconductors and Software:
When it comes to technology the sector the sector we know is quite diversified, but as my readers know I like to monitor the semiconductor and software names. The SMH recorded a strong move the week advancing 7.5%, nearly tripling the gain of the Nasdaq. On its weekly chart one can see it bounced nicely off the oversold 30 RSI figure, the first time in a few years. A good sign is the reaction we received from many names following earnings, something we have not been accustomed to as AMD and TXH disappointed the prior week. Recently we witnessed big moves from FORM, AMKR, MLNX, AMKR and XLNX. Looking at how some software names acted following earnings, especially with some leading security names, was mixed. FEYE is emerging as potential winner, as FTNT and QLYS were under duress. Lets keep in mind in this space we have seen some M&A activity obviously with IBM/RHT and CA was bought this summer by AVGO. IMPV also was taken private 3 weeks ago. Green shoots are taking place, but we need further strengthening PRICE action.
Examples:
In market sell offs like we witnessed in October, some very good watch lists should have been created. Obviously all stocks will not go down by the same amount, but the weight of the overall selling will water down individual equity prices. Some dislocations will be more apparent than others and below is the chart of ROKU and how it was presented in our 10/30 Technology Report. It was a case where once again a “cluster of evidence” appeared as the stock nearly filled in a gap and held the very round 50 number very well recently. It was underneath the figure three sessions on 10/23, 10/29-30 and recorded zero CLOSES below it. This week jumped more than 11% registering a bullish hammer candle, and a double bottom pattern has taken shape. The pivot is 65.40 and the catalyst that may enable it to take that out would be the earnings report next Wednesday after the close.