Negative News Accelerating?
Without question AAPL dominated the headlines with its lowered numbers after the bell last night, but perhaps we should become accustomed to more of these preannouncements and negative news in general. Other high profile names that did the same recently were MU and FDX, and this is an ominous sign. The Nasdaq lost 3% Thursday ending a 5 day winning streak. This very volatile behavior we are witnessing is just the opposite of what normally happens in bottoming patterns. When stocks or indexes bottom it tends to be accompanied by smooth, rounded shapes that take time. Perhaps most of the PRICE correction is behind us, but the time aspect could go on longer than many anticipate. And that would give it a chance to build to a smooth foundation we have been stressing. Instead we keep hearing that Powell now must say this or that Friday to placate the averages, and of course the normal China trade talks have been front and center. Not to long ago it was the Fed must reverse course of their perceived interest rate hikes this year. News does not often put an end to selling. In my opinion the market will find a floor and it will turn around on its own, devoid of any statements. For one the incessant calls for a bottom would be a good start.
Keep An Eye on Relative Strength:
The semiconductors have been lagging for almost a year now, as they were the first subgroup to falter within technology. The SMH topped the week ending 3/16 which was the middle week of a bearish evening star pattern and the ETF now sits 28% off its most recent 52 week highs. The next 7 months coiled as a WEEKLY symmetrical triangle took shape with a break below 100 the week ending 10/12 recording a breakdown, and it now sits at its measured move of 18 handles lower. This is merely a guideline, and anything but science, as many winners on the long and short side are sold to early leaving big money on the table. Below is a chart comparing the semis to software and the Nasdaq itself, since the March drawdown for semis. Obviously on an absolute basis it is falling, but relatively speaking software is holding up well. Now this is still a time to be heavily in cash, but when the market does eventually turn around, ones watchlist within technology should be heavily skewed toward software names.
In 2018 “old tech” names held up pretty well and many even outshined there newer competitors. MSFT transformed itself from a hardware name, and to be frank it is having issues with the very round par number at the moment. The move above 100 the prior 5 sessions may have been a bull trap as today it finished comfortably underneath it. CSCO was a reliable name until failing to break above a cup base trigger near the round 50 number on 12/4 and is rapidly 17% off its own most recent 52 week highs. Below is the chart of perhaps a lesser known name, PLAB and how it was portrayed in our Technology Report on 12/28. The semiconductor equipment play has some nice technical aspects going on at the moment with a gap fill holding nicely from the 8/21 session. It has enjoyed 200 day SMA support and today fell but recorded a bullish hammer candle. The round 10 number has given it issues, but if it can clear that area a nice cup base is taken shape. In this environment however it is best to stay very small and nimble and wait for the major averages to find some strength.