The Nasdaq gave up 4.3% this holiday shortened week, its third worst showing behind just weekly losses of and 5.1 and 6.5% the weeks ending 2/9 and 3/23. The tech heavy benchmark is now down 6 of the last 8 weeks, with 4 of the declining weeks falling by at least 3.2%. It is now 15% off most recent 52 week highs and since undercutting its 200 day SMA, a line it found support at during the “brief” October drawdown, it has CLOSED beneath that secular line of the 28 of the last sessions (and we know the saying nothing good happens under the 200 day SMA). The slope of the line, which many determine the trend by in simplistic terms, is now flatlining. It has now CLOSED the last 3 days below the round 7000 number. On its WEEKLY chart it has finished below its 200 day SMA 5 straight weeks, a line it was above for 29 months prior to the undercut the week ending 10/19. Now of course things tend to overshoot both to the up and downside, but this group remains in the penalty box until the very least climbing back above its 200 day. In todays report we look in depth at the charts of some former generals, including MSFT, PAYC, FTNT (as well as VSH and TTMI) and if their recent lows are pierced could spell some real further trouble ahead. Perhaps the offer good risk/reward here, but as always have tight stops.
Semiconductor/Software Ratio Chart:
The semiconductor space was the “canary in the coal mine” if one were to do some Monday morning quarterbacking. The SMH lagged following a WEEKLY evening star pattern completed the week ending 3/23 which slumped 6.6%. The ETF is now in bear market mode off by 21% from most recent highs. The fund broke below a symmetrical triangle, whose pivot was just above the very round 100 number. Within the semiconductors there has been very respectable resilience from names like XLNX and MLNX. IPHI is now well above its February lows, and PLAB has formed a symmetrical triangle and if can CLOSE above the very round 10 number for a few consecutive sessions it could really get going. Directly below is the ratio chart comparing semis to the software group, and since September notice the higher lows three times. Let us be clear there is still plenty of work to be done, but one should make a watchlist to be prepared in the event a year end rally develops, for technology would have to be a big contributing factor and therefore semis would most likely participate.
The software group was the best performing sector within technology, when the space was firm earlier in the year. Times have certainly changed, but we will always maintain our stance to keep an eye on what names are acting well in an area that is feeble. Below is the chart of ATTU and how it was profiled in our 11/5 Technology Report. From a somewhat fundamental point of view earnings have been very well received with nice gains of 23.3, 25, 6.7 and 16.4% on 11/1, 7/25, 5/3, and 11/2/17 and a loss of 3.3% on 2/1. More importantly PRICE action has been stout. It powered above a double bottom trigger of 19.49 and acted well POST breakout, a very bullish trait especially on this type of tape. The stock remains above that pivot and is holding onto the very round 20 number very well, with the last 3 sessions trading below 20 intraday but zero CLOSES underneath. It now sits 15% off most recent 52 week highs and we still think this is an opportunity on the long side.