After President Trump’s tweet about a potential 10% tariff on iPhone imports from China, investors’ heightened attention to technology stocks moved a notch higher.
Becky Quick of CNBC was in tune with investor concerns, as shown in this segment, but it was my answer to the spot-on question from Andrew Ross Sorkin on tech stocks that has generated the most emails. At a time when gurus’ calls are on both bullish and bearish sides, many investors found some clarity in “Here’s how to tell if stocks will enter a bear market or rise to new highs.”
Important events are ahead. Let’s update the situation with the help of a chart.
Please click here for an annotated chart of Nasdaq 100 ETF QQQ. I chose the chart of this ETF over the Dow Jones Industrial Average DJIA, the S&P 500 ETF SPY and the small-cap ETF IWM because of dominance of tech stocks in the Nasdaq 100. The four largest components in the Nasdaq 100 are Apple AAPL, Amazon AMZN, Microsoft MSFT and Google GOOG, GOOGL. Please note the following:
• The chart shows a move above the trend line. This is positive.
• The chart shows a very short-term bottoming pattern. This is positive.
• The chart shows RSI (relative strength index) divergence. In plain English, this means that although the price fell below a prior low, RSI did not go as low. This is a mild positive.
• As the chart shows, the overall pattern of RSI is positive.
• The low came on somewhat heavier volume. This is mildly positive. However, this is a low conviction point; a significantly higher volume would have increased the probability of this being a bottom.
• As the chart shows, the rally is on low volume. This is negative.
• Positive earnings from Salesforce CRM and Nutanix NTNX are creating positive sentiment.
• Smart-money flows in semiconductor stocks such as Applied Materials AMAT and Micron Technology MU have turned to neutral from negative. Smart-money flows have been positive in Intel INTC through most of the tech decline; interestingly, Intel has held up well during this period. Smart-money flows turned positive in AMD AMD at the depth of the selloff. You already know from my writings over the years that smart-money flows have a great track record…Read more at MarketWatch.
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