Bad Apple, Rotten Core?

For a week that started on a fine note rising more than 110 handles on Monday, it ended anything but. The week endured TWO 3% plus declines, the first since the week ending 2/9 which slumped 5.1%. The tech rich benchmark has fallen 7 of the last 10 weeks, and all seven CLOSED at or near lows for the weekly range. It was its SIXTH consecutive weekly CLOSE below its 200 day SMA, and last week recorded an ugly bearish engulfing candle finishing more than 500 handles from the intraweek high. Since the beginning of October the index has registered FIVE lower highs, and the volatility in continues to show is very indicative of topping action. It now stands 14% off most recent 52 week highs, compared to the S&P 500 and Dow which are each 10% off their own, and is less than 1% higher for 2018. AAPL easily the Nasdaq’s largest component, is now 28% off most recent all time highs, and lower 9 of the last 10 weeks. The break below the round 170 number Friday could be significant. The downgrades of the stock seem relentless, but for once the bevy of analysts could be correct.¬†

“Old tech” Bull Trap:

As investors we must always acknowledge when we are wrong and act swiftly. It is fine to be wrong but not stay wrong. When one is mistaken in a trade, which will happen often, move to the sidelines. Below is a good lesson on this with the chart of INTC and how it appeared in our Technology Report on 11/14. Let us be clear that we were WRONG about this set up, but I was confident that the more times this supertanker semiconductor would touch its 200 day SMA the better its chances of breaking through it. It aligned with the very round 50 number as well, but it did break above it this past Monday and CLOSED above the 200 day SMA too. The candlestick was questionable at best as it recorded a spinning top. The set up is a good illustration of why no matter how solid the potential looks one must be willing to sever their emotional ties to it. The stock fell more than 6% this past week and its cup base whose right side was under construction looks vulnerable at best.

Examples:

In the overall fragile environment we are currently in, look for names that are shrugging off the softness. To be clear we are speaking of recent firmness as the stock here LASR, is still 56% off most recent 52 week highs. It rose this week, albeit by just five pennies, but it was respectable relative strength as the Nasdaq fell nearly 5%. Below is the chart and how it was profiled in our 12/3 Technology Report (trigger has not be taken out as of this writing). Keep in mind this is a recent IPO so these tend to be under looked and under covered. The last 3 weeks have CLOSED very taut, all within just .17 of each other, and this type of coiling action normally leads to explosive moves. It recently broke ABOVE a bear flag formation, and moves that occur the opposite way they are expected to, often can be powerful too. The very round 20 number is coming into play with 14 consecutive CLOSES under, 12/4 finished precisely at 20, and the longer it spoons its 50 day SMA the more likely it is to break to the upside.

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