Big tech is consolidating, but the game isn’t over

September 27, 2017, 6 Comments

We’ve owned our share of tech stocks in the past. In fact, we still hold MSFT in our ValueTrend Managed Equity Platform. Having said that, we peeled back our tech exposure a couple of months ago by selling GOOGL and AMZN. Although we had owned GOOGL for some time, our indicators suggested it was overbought at the time—as was Amazon.  Quite frankly, so was most of the tech sector. Our decision to sell out 2/3rds of our holdings in the sector was based on a massively overbought situation AND a weakening USD at the time. I mused about the timing of such a sell, if any at all, back in June on this blog.

Glad we did sell.

As has happened in the past with these stocks, the FANG group and other leading stocks looks to have entered into a period of consolidation. Rather than worry about this development, we are beginning to watch for a re-entry point. Below are some charts of the more prominent tech stocks – although the list is nowhere near comprehensive. I’ve made some notations, and added some thoughts on those stocks in the notes below them.

 

Google

Google Chart from 2008 to 2017 with notations - technical anlysis of tech stocks

The Google chart shows us how this stock has gone through many periods of consolidation since the 2008 crash. There was a two year triangular consolidation from 2010, then a flat consolidation from late 2013 to mid 2015—which lead into another flat consolidation into 2016. Note that these consolidations are usually a year or more in length. We’re probably due a period of sideways movement – and the chart indicates that period may have begun. During periods like this – you want to buy from a bounce off of support. The weekly chart above doesn’t allow for much detailed analysis, but if you were to put up a daily chart you’d notice that the current floor for GOOGL is around $920 or so.

 

Amazon

Amazon stock chart with notation 2008 to 2017 - technical analysis of tech stocks

The Amazon chart shows us that the pauses are typically more of a pullback within its trend rather than a longer termed consolidation period. The bad news is that you get fairly aggressive pullbacks on this stock periodically. The good news is that they’ve been short lived.

Right now AMZN is finding support at around $930 – a bit above the 40 week (200 day) MA lies—which is around $920.  As you will see on the chart, the MA can be broken—so perhaps its best to look for trendline support –which I’ve drawn on the chart. The stock broke its black trendline in 2014, but in the other pullbacks its experienced since the 2008 crash it’s found relatively good support on that trendline. The trendline is at about $850 right now. So in my view, if AMZN can hold its current low-$900’s MA support levels before the tech seasonal period hits in October, that’s a good entry point. If it breaks the MA, look for a test of the black trendline in the mid-$800’s before buying.

 

Facebook

Facebook stock chart with notation 2008 to 2017 - technical analysis of tech stocks

FB has been supported by its 40 week (200 day) MA since its IPO in 2012. The stock is about $12 over that MA right now. Give it a bit and see if that is tested before the October technology seasonal period starts.

 

Netflix

Netflix stock chart with notation 2008 to 2017 - technical analysis of tech stocks

NFLX has seen the least amount of damage in the tech consolidation of late. Except for 2014, it tends not to consolidate – it likes to sell off or move up. Note the negative swings when it does pause—particularly that of 2011. One to keep an eye on in such an event. It can get ugly.

 

Apple

Apple stock chart with notation 2008 to 2017 - technical analysis of tech stocks

The 40 week MA works well in identifying trends and consolidations on the AAPL chart. Apple tends to trend up or down. No consolidations to be seen on this chart. Given the higher highs and lows on this chart of late – despite the recent pullback – it’s considered to be in an uptrend. So long as the stock stays above the 40 week MA and stays above its last low – which was pretty much exactly $140 – this stock would be a “buy” on a test of its 40 week MA.

 

Ed Veal breaks world hour record on bicycle

Some of you know that I race bikes here and there, and have trained under Ed Veal (Canadian cycling icon) for a few years. Ed never gives up. Despite setting the all time Canadian record for the hour record 2 years ago, he decided he’d go for the world record for men 40-44 years

Ed nailed it with a 48.587 km/hr average speed. Yikes! New world record set—and now Canada holds it.

 

6 Comments

  • Hi Keith,
    This appears to augur well for the sector ETFs that these stocks dominate. Would you be able to expand your analysis to the XLK and QQQ?
    Thanks as always for your insight.
    Joe

    Reply
    • Actually Joseph I did take a look at the QQQ–heer is a recent blog on it: https://www.valuetrend.ca/nasdaq-momentum-diverging/
      XLK is pretty diversified–so its a bit tighter in formation than the individual stocks that I mention (which were dominant market leaders). Whatever the case–its in an uptrend with a very tight consolidation (sideways) in the works at this moment. It shows us that the tech sector is likely to move up and down for a bit before launching into a new trend – even if we include the lesser known names that are in XLK

      Reply
  • Amzn appears to be holding support and up three days to this point and perhaps of worthy of a buy. How concerned are you of the market background being poor seasonally, extended rally, near unparalleled enthusiasm, etc….

    Reply
    • Hi Terry
      the onward and upward enthusiasm is a puzzle to everyone I know. I regularly speak with the Vialoux’s, Brooke Thackray, and read sentimentrader.com’s comments outlining this historically low volatility environment–its a puzzle to all of us. In a nutshell–this is an atypical market – nothing but up, corrections are 1% or so–historically low VIX, and bad news lasts about a day before markets go back up even on those minor corrections.
      Don’t get me wrong–the trend has been awesome and dictates a bull market environment–its not the trend that is the puzzle–its the lack of corrections within the trend. The S&P500’s pattern for almost two years is so tight it looks unreal. Yet…it is what it is.
      So I am defaulting the seasonals – if we don’t get a correction by the end of Oct I am forced back in anyhow–and that includes the FANGS’ as you note, etc.

      I can finish this comment with a quote: “The four most expensive words in investing are: ‘This time it’s different.’” So said Sir John Templeton.

      Reply
  • Would you consider ZDJ the Dow Jones Industrial ETF which is hedged to Canadian to be a good buy at this time? The trend and seasonality are good from mid-October to the first week in January according to Don Vialoux. Thanks.

    Reply
    • John–bottom line answer is “yes”
      Perhaps wait a week or two to see if markets correct a bit, but whatever the case, it is pulling back to trendline, looks to be holding–so far, technically good and a probable setup for a rally.

      Reply

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