Give Nasdaq Credit Where Its Due:

The Nasdaq registered its second worst day in 2019 Friday falling 2.5%. The only other precedent this year was 1/3 when AAPL fell 10%. What happened the very next session? It ROSE 4.3%. Small sample obviously, but the bears have been unable to show much follow through to the downside. With the exception of the 5 day losing streak between 3-4/8, it recorded back to back losses just twice so far this year. Most concerning this week was the Russell 2000 falling more than 3.1% as the she small cap benchmark is often a good leading indicator. The fact that it is below both its 50 and 200 day SMA now, as the Nasdaq, Dow and S&P 500 are all above, is worrisome. Many declare its the large weighting of financials in the index, but as that group continues to melt it should have less an impact upon it.

Semi Surrender?

The semiconductors have been a bright spot in 2019 as well needed strength within the group emerged. They are now edging out software YTD with the SMH higher by 22.3% and the IQV has rose 21.9%. This week the SMH did record a bearish spinning top, known for its ability to forecast trend changes. It did CLOSE near lows for the weekly range, just like it did the week ending 2/8 (also a spinning top), which did NOT interrupt its ascent. From the week ending 12/28/18 it has risen 37% top to bottom, so a pullback is a good thing. Looking at leaders in the space even though percentage gains were rather large, the volume was tepid. I would have expected more, especially on a Friday. Next week should provide some clarity.

Examples:

Most breakouts tend to be retested to check their legitimacy. Below is the chart of ACIA and how it was presented in our 3/13 Technology Report, and this one is no exception. The move above a bull flag formation on 3/18 rose more than 3% on double average daily volume, exactly what you want to see. Thursday added another 4.4% on hefty trade once again, and then Friday swooned lower by almost 6%. Three of the last four weeks have CLOSED in the lower half of the weekly range and next week will be a big test for the name. Keep it on a short leash as we know the best breakouts tend to work right away.

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