Momentum Fading

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06/28/2017 | 04:37 pm

The Nasdaq-100 broke below the widely-followed 50-day moving average on Tuesday….for the first time in over seven months.  News is following the markets. Over the past couple weeks we have had several securities firms downgrade Apple to a “hold”. Yesterday,  European regulators fined Google a record 2.42 billion euros for abusing its dominance of the online search market. Google’s stock fell -2.5% on Tuesday, a move which was foreshadowed by the bearish engulfing candlestick formed after Monday’s session.

This week’s fall in tech stocks is more concerning as we are coming off a large decline a few weeks ago in the Nasdaq-100. Technically we are setting up for a potential Failure Swing, a formation where the current upswing fails to attain the prior index top.  The figure will be “activated” with a close on the Nasdaq-100 below 5630. Given the rich valuations in tech stocks, traders have been buying the big cap U.S. tech stocks almost solely on momentum. As signs appear that momentum is turning, selling in tech names could turn violent.  We can easily foresee a swift move down to the 200-day moving average on the Nasdaq-100, a -8% move from Tuesday’s close.  With a period of negative seasonality arriving in August, tech bulls should be nervous here.

Owen Williams
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