Round Number Theory:
Sentiment still seems to be lousy, and the bears have been unable to ignite much damage to the Nasdaq itself, even with software wounded. The tech rich benchmark sits just 2% from most recent 52 week highs, and with the abundance of negative chatter one would think the index would be at least 10% from its most recent yearly peak. It is not to say weakness can not develop, but lets give credit where it is due. In our last Technology Note on 9/5, I declared one day of CLOSING above the 50 day SMA was a good start, but wanted to see successive finishes. Well we now have 5, and one must respect the gap fill on 9/10 that bounced precisely off the very round 8000 number (S&P 500 CLOSED fractionally above 3000 figure). A cup base is now taking shape with a potential buy point above 8340.
Glass Half Empty Or Half Full?
Just a couple weeks ago we put up a ratio chart of the semiconductors compared to the software group. A bull flag had formed, but the breakout did not occur. Fast forward to today and the baton has been passed. Sure the software group sank with huge moves witnessed from ZS, which has now been cut in HALF in six short weeks. SHOP rose Wednesday, but is still reeling from the 15% drop the prior 3 sessions. Leader TTD slumped 80 handles top to bottom the last month, and former leader TWLO has dropped one quarter of its value in the same time frame. While software reverses some semis are stepping up, namely equipment plays like AMAT LRCX and KLAC. Should be an interesting year end.
Purchasing stocks in a downtrend can be tricky. But they can also be very profitable if caught right. Below could be a good example of the chart of NTNX and how it appeared in our 9/5 Technology Note. Even with its powerful move lately it still trades 50% off most recent 52 week highs. Software has been taken to the woodshed in recent days, but after the huge 30% plus combined gains the weeks ending 8/23-30, it has jumped another 13% this week so far. The trend took on a bullish complexion after the reclaim of the 50 day SMA, which is now sloping higher for the first time in months. In my opinion the stock has room to the 200 day SMA, and if it does indeed get there, reevaluate then.