Tech Stocks Hit The Brakes!

After going up in a straight line for months, the technology sector (see chart below) has reversed its upward course. After hitting an all-time high of 6341.70 on June 9th, the Nasdaq (chart) has given back 190 points or three percent while approaching its 50-day moving average. Nowadays it’s pretty rare to see a one percent pullback in tech stocks let alone a three percent retracement in a week. The media is now all over how tech stocks today are beginning to resemble the internet bubble. The difference between today and yesteryear is that the top five tech stocks – Amazon (NasdaqGC: AMZN), Apple (NasdaqGC: AAPL), Facebook (NasdaqGS: FB) Google’s parent company Alphabet (NasdaqGC: GOOGL) and Microsoft (NasdaqGC: MSFT) have been responsible for a big chunk of the Nasdaq and S&P 500 (chart) recent gains. The problem with comparing today’s market with the internet bubble is that the aforementioned tech leaders all have incredible balance sheets while continuing to grow at a pace that supports their relative stock prices. One may argue that Amazon remains overpriced especially with its lofty P/E ratio.

It’s hard to imagine that anyone would be concerned about a three percent pullback in any stock or index, but because of how strong stocks have been since the election, anything other than a flat to up day will get noticed. That said, without question all eyes will be on whether or not the Nasdaq’s 50-day moving average will get tested. The last time the Nasdaq (chart) did not hold its 50-day support line was last October. Since then tech stocks have tested and moved off of its 50-day average multiple times. 6085 is the current the 50-day moving average of the Nasdaq which is about 65 points away. I am not suggesting it will go there, but if it does and according to the way tech stocks have reacted to that particular support line, a bounce could be in the cards. Good luck to all 🙂

~George

Nasdaq chart - George Mahfouz Jr

No Fear Here…

Despite North Korea launching its seventh missile test of the year on Sunday and the White House seemingly in an upheaval, stocks continue to demonstrate no fear and continue their record setting ways. Today the S&P 500 (chart) and the Nasdaq (chart) hit all time highs. Without question this bull market is now even catching wall street veterans off guard. Q1 earnings reporting season is close to wrapping up and other than retail, most companies have reported in-line or outright beats in their earnings results, especially the tech sector. Tech has been on fire lately and this is due in large part of mega-cap tech smashing analysts expectations. Earnings results from companies such as Apple (NasdaqGS: AAPL), Amazon (NasdaqGS: AMZN), Alphabet (NasdaqGS: GOOGL) and Facebook (NasdaqGS: FB) has propelled the Nasdaq (chart) and these particular issues to all-time highs. The Dow Jones Industrial Average (chart) and the Russell 2000 (chart) remain in striking distance of setting new records as well. It is truly remarkable how the markets have been able to weather the current political environment here in the U.S. and the geopolitical risks abroad.

From a technical perspective, the aforementioned key indices are in pretty good shape. The Nasdaq (chart) is the only one of the four that remains in overbought territory according to the relative strength index. All of these averages also remain above their respective 50-day and 200-day moving averages, yet another bullish sign. Volatility also remains at historic lows. So one may ask what about the “sell in May and go away” adage? From a technical standpoint, I do not see any reason why these markets won’t continue to melt up from here. Of course there is always the risk of a geopolitical event or the actual seasonal risk of assets taking a pause or retracing a bit. That said and whatever the case may be, it is undeniable that the markets have been the most resilient in years, if ever.

Good luck to all 🙂

~George