Prudent Pause?

The Nasdaq ended a very impressive 10 week winning streak that rose 22.8% from top to bottom. The 2.5% drop this week could be forgiven after a run like that, although it did occur at a critical level near the 7500-7600 level. Additionally it tired near the 200 day SMA, a line that has been influential since last October. The bearishness here seems pervasive, which is why I believe weakness will not be a large as many are predicting. But one should be somewhat troubled over the action in the Russell 2000, often a good leading indicator. The small cap benchmark dropped more than 4% this week, and even with that heavy drop it is still outperforming the other “big three” YTD as it has advanced 12.8% (Nasdaq is up 11.6, S&P 500 9.4 and the Dow by 9.1% in 2019).

Leadership Evaporating?

An abundance of chatter was focused on the semiconductors this week, but the real leader within technology for sometime has been the software space. It has held up better as the IGV is off just 4% from most recent all time highs, while the SMH sits 12% off its own most recent peak. A good explanation could be the lack of true generals in the semiconductors, with the lone exception XLNX (recorded a rare doji on 3/1 at all time highs). Looking at the weekly chart of the IGV, one can see back to back dubious candles with an engulfing candle this week, preceded by a doji candle the week prior. Add to that a quick breakdown in a cup base pivot of 206.76 and the bullish narrative is weakening. We know the best breakouts tend to work right away, (and the ones that do not often unravel quickly) and this weeks action suggests some softness going forward.

Examples:

We mentioned recently that this week was most likely a good time to think of shorting names that were left behind during the prior 10 week winning streak for the Nasdaq. Below is the chart of GRUB and how it was presented in our 2/25 Technology Report. The name is coming under fierce competition, and Uber Eats seems to be eating a good chunk of its lunch. PRICE action is telling investors that something was amiss as it still trades 51% off most recent 52 week highs. This week recorded its fourth double digit weekly loss, since the October swoon, falling 11.6%. Shareholders are losing their appetite with this one, pun intended.

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