The Technology Sector Fuels the Advance to New All-Time Highs

Tape action was very strong the last four months, but then started to show signs the rally could come to an end and a correction could possibly start. For the past two weeks ahead of earnings season, the S&P 500 remained in a tight 1% trading range. The Russell 2000 and the Mid Cap 400 (small and mid-cap averages) lagged, momentum indicators started to weaken, and market breadth started to slip.

However, on 4/23 favorable first-quarter earnings reports kicked in, inspiring the bulls to buy stocks. Small and mid-cap stocks reversed course, rallying sharply, outperforming the S&P 500. Technology, the leading sector this year accelerated to the upside fueling the S&P 500 and Nasdaq Composite to new all-time closing highs. The strength on 4/23 implies the advance has more room to go on the upside. However, if the low is violated on a closing basis on the Russell 2000 and the Nasdaq 100 (QQQ), 155.36 and 188.13 respectively, this would imply a false breakout like what we had in March.

Where do we go from here?

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

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

The QQQ peaked on 10/1/18 (green circle), then fell to a low on 12/24 before the start of a powerful uptrend. (blue line). In March, the QQQ broke above the middle channel. However, it was unable to sustain further gains, a false breakout that retraced back towards the middle channel, which acted as support (pink rectangle). After a few weeks of sideways trading with an upside bias, the QQQ penetrated the upside channel on the 60-minute chart (not shown, see S&F hotline on 4/22). Weakening momentum quickly changed unexpectedly to strong momentum on 4/23. Instead of breaking to the downside, the QQQ has broken outside of the range to make a new all-time high (circled in red). This rally remains in progress at the time of this writing. Time will tell if the thrust to the upside can be sustained or the breakout to new highs will be the peak for the near term. Upside objective is 204.00. Support is 185.00, followed by 179.00.

Many times, after price rises sharply, excessive optimism (a contrary indicator) of investors occurs, which is the case now. I believe this rally can continue despite the optimism and the gains that have already been achieved. The key is for the daily uptrend to remain intact. On the other hand, if the uptrend is broken, then my bullish outlook is negated, and I would then expect risk to increase quickly. With no pullback to speak of, and excessive optimism, then it’s likely profit-taking will begin if the rally stalls and the uptrend is broken.

The bottom half of the chart is MACD (12, 26, 9 day), a measure of momentum. MACD has given repeated sells from an overbought condition since March. However, with MACD making a higher high today, confirming the QQQ high, this is a positive development that higher prices are likely, and any decline is to be contained. Therefore, if the uptrend is broken, the middle channel should be major support and another rally attempt would follow.

Summing Up:

The tape action in the Nasdaq 100 (QQQ) continues to lead the powerful broad rally this year. I recommend keeping an eye on the top holdings in the QQQ as a clue for further advance or a warning the recent breakout will stall, and a pullback could begin. (see below***). For now, the bulls are in control but be alert if the present rally stalls and the QQQ closes below the uptrend at 185.00.

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 4/23/19, the top holdings are Apple, (AAPL) 10.41%, Microsoft Corp (MSFT) 10.25%, Amazon.com, Inc. (AMZN) 9.91%, Alphabet Inc. Class C (GOOG) 4.71%, Facebook, Inc. (FB) 4.65%, and Alphabet Inc. Class A (GOOGL), 4.14% totaling 44.32%.

Source: //www.etf.com/QQQ#overview

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******Article published in Systems and Forecasts by Bonnie Gortler April 25, 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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