Technical Chart Patterns in the Technology Sector are Giving a Mixed Message

It’s easy to get caught up with day by day stock market movement and the latest news developments. Past experiences have taught me that most times the gains or losses based on news are only temporary and prices tend to go back to where they were before the news.   On June 4, the Dow, S&P 500, and Nasdaq enjoyed their best single-session gains since Jan. 4, surging over 2% on news that Federal Chairman Powell said the Fed will “act as appropriate” to support economic growth, alluding to a possible interest rate cut.  All the excitement happened after May was the first losing month for the major averages in 2019.

The Dow, S&P 500, and Nasdaq finished May at their lowest levels since early March.   There are mixed messages being given based on the short, intermediate, and long-term charts. The stock market may not be out of the woods or it could go straight up from here.  With the decline technical indicators in the short-term are oversold and in an area where potentially tradeable rallies have occurred in the past. A rally is underway at the time of this writing. However, the charts of intermediate and long-term technical indicators are not as favorable.  These charts are showing weakening momentum patterns with negative divergences that are concerning and suggesting caution.

The possible interest rate cut news appeared to have ignited a short covering rally where ten of the eleven S &P SPDR sectors were higher.  The S&P 500 rose back to 2800, a key technical level from where it broke below before the news. It’s a little early to know for sure if a short-term bottom is in and the present decline is over.  Although there was a lot of selling that has taken place in May, in my opinion there hasn’t been a real panic and a day where 90% of the volume is on the downside as investors sell stocks, throwing in the towel and the averages close at the low of the day.  The bulls and bears keep flipping back and forth for control.  Only time will tell us who will take control. If the intermediate and long-term charts warning messages are correct, it’s time to make sure you review your investment holdings and reduce your risk if you haven’t already.  What is important for you now is to have a portfolio that you are comfortable with, a plan in place that is customized to the investment style that gives you peace of mind when investing.

Where do we go in the short term?

Figure 1: PowerShares QQQ (Nasdaq 100 Index) Daily Price, Trend Channels (top), and the 12-26-9 Daily MACD (bottom)

 The top part of the chart shows the daily PowerShares (QQQ), (***See below for top holdings.) an exchange-traded fund based on the Nasdaq 100 Index and its active trend channel (purple line).

Technology stocks are no longer the catalyst leading the market higher as they did in early 2019. The QQQ has been in an uptrend since 12/24/18. However, in May, the technology sector has hit a bump in the road.  Tech stocks have been under heavy selling pressure. The QQQ broke its uptrend after making a high on 5/1/19 (red circle) and falling -11.5% from its peak. An apparent shift out of technology stocks appears to be underway.

The Nasdaq has been weaker than the S&P 500 which I believe is worth watching closely. If the QQQ starts to outperform the S&P 500 over the next several trading sessions consistently, this would be a positive sign that a short-term bottom was made on 6/3. As of this writing, the June 4 rally appears to be nothing more than a short covering rally, which started on news of a potential interest rate cut later in June.  The downtrend remains in effect. I believe the decline may not be complete and at least a retest of the 6/3 low at 169.27 is needed for a sustainable rally.  With the weekly and intermediate patterns also questionable, (charts not shown), short term caution is suggested.  Resistance is at 182, the middle channel. The downside objective of this decline is at the bottom channel at 157.00.  A more ideal entry instead of bottom fishing would be if a double bottom formation in MACD. However, this could take several weeks.

The bottom half of the chart is MACD (12, 26, 9 day), a measure of momentum.  MACD has fallen from an overbought condition above 0 since April. MACD is now very oversold, at the lowest level since early 2019, but not quite as low as the past December bottom.  Although MACD has turned up, no buy has been given.  Its possible MACD will continue to rise from here, and the QQQ has seen its low. However, sometimes it’s best to wait and be a little late to the party instead of being in early and participating in a significant decline.

Summing Up:

The tape action in the Nasdaq 100 (QQQ) has been weakening.  There is a mixed picture technically based on short, intermediate and long-term charts. It appears investors are reducing their risk in the technology sector.  I recommend watching the top holdings in the QQQ as a clue for short term direction (see below***). For now, the QQQ is oversold on a short- term basis and a possible low was made on June 3.  However, the daily downtrend remains in effect. The tape action suggests the rally is nothing more than the news that sparked a short covering rally. However, a double bottom formation in MACD or a close above 182.00, would shift the short-term outlook to more favorable, within an intermediate and long-term riskier environment.

I would love to hear from you. Please call me at 516-829-6444 or email at bgortler@signalert.com to share your thoughts or ask me any questions you might have.

*** The QQQ is one of the most traded ETFs in the world. The QQQ tracks a modified-market-cap-weighted index of 100 NASDAQ-listed stocks. As of 6/4/19, the top holdings are Microsoft Corp (MSFT) 10.98%, Amazon.com, Inc. (AMZN) 9.93%, Apple, (AAPL) 9.76%, Facebook, Inc. (FB) 4.72%, Alphabet Inc. Class C (GOOG) 4.36%, and Alphabet Inc. Class A (GOOGL), 3.82% totaling 43.57%. (Source: //www.etf.com/QQQ#overview)

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******Article published in Systems and Forecasts by Bonnie Gortler June 6, 2019

Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

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Bonnie S. Gortler

Bonnie Gortler, Consultant, Coach, and Author specializing in Wealth and Well-Being, is a successful stock market expert who has been instrumental in managing multi-million-dollar client portfolios within a top-rated investment firm during her over 35-year corporate career. As the author of “Journey to Wealth,” Bonnie has made it her mission to share the importance of risk management and how to enjoy real financial well-being by applying the technical and mental sides of investing. Bonnie has an M.B.A. and is a certified life coach. It is through her love of coaching, consulting, blogging, and social media that she creates change in the lives of many and inspires people from around the world. Bonnie is fully committed to your personal growth and development as she shares her winning spirit and powerful techniques with you. Visit BonnieGortler.com to gain tips and insights about investing, personal development, and inspiration through her articles on Wealth and Well-Being.
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