The recent decline in giant capitalized tech stocks has now gone far enough and lasted long enough, triggering chart signals warning investors to at least not buy these stocks in the dip.
The chart signal is sparkling by a simple moving average of 50 days, which many of Wall Street use as a guide to short and medium term trends. The strongest warning applies to three of the four conglomerates by market capitalization, which has helped drive the rally in the wider stock market since the March low. Microsoft Corp. MSFT,
Amazon.com Inc. AMZN,
Alphabet Inc., Google’s parent company. GOOGL,
A slightly less powerful warning, but nonetheless the biggest Apple Inc. A warning about AAPL’s stock also flashes.
Invesco QQQ Exchange Trading Fund QQQ,
Tech-rich Nasdaq-100 index tracks NDX.
S&P 500 index SPX,
Also read: Sell Mega Cap Technology, QQQ on Monthly Maximum Downtrend after Financial Crisis
Mark Arbeter, president of technology analytics at Arbeter Investments LLC, said that many of the “excessive and understated” megacap leaders are in “threatening” technology positions.
“For some indices and individual names, 50 days have been flattened out, and for others it looks like it will roll over,” Arbeter said. “Not only this, but their chart patterns and sentiment suggest that the mid-term outlook is not weak, but has turned to neutral.”
Microsoft’s share price fell 1.2% on Friday, closing at $200.39, closing for nine consecutive trades and closing below the 50-day moving average (50-DMA). If that’s not enough to scare buyers, or not enough to bold the bear, the 50-DMA started rolling over on September 11th and has been lower ever since.
FactSet data showed that the 50-DMA at the closing price on Friday was $210.730, which was $211.008, 27.8 cents lower than the 50-DMA at the closing price on Thursday, 19.9 cents lower than Wednesday’s $211.207.
The 50-DMA decline on Wednesday acted as resistance, limiting the stock’s attempts to rally at market prices. This is a change from late July to mid-August when the rising 50-DMA played a supporting role.
As JC O’Hara, Senior Market Engineer at MKM Partners, told his client this week in a note, the slope is what matters.
O’Hara acknowledges, “The moving average is an absolute level to monitor during an individual’s process. “In our work, we found it more important to monitor the slope of the moving average, not necessarily the average level.”
With this in mind, the slope of the 50-DMA for Amazon and Alphabet stocks turned negative on Thursday and fell further on Friday.
Amazon’s 50-DMA fell $1.448 on Thursday and then fell $4.554 on Friday, while Alphabet’s 50-DMA fell 33.1 cents on Thursday and then fell $1.351 on Friday.
Apple shares closed below 50-DMA on Thursday for the first time since April 21st, then fell 3.2% on Friday to a seven-week low.
Shares have fallen 17.2% to date this month, the largest monthly decline since the 18.4% decline in November 2018.
Triple Q closed for the second consecutive day under the fund’s 50-DMA on Friday, for the third time last week. It won’t be long while 50-DMA is still rising. It rose 0.207 points on Thursday and 0.360 points on Wednesday, up 0.094 points on Friday.
QQQ has fallen 9.5% so far in September and is heading for its worst monthly performance since it fell 11.5% in November 2008.
Meanwhile, the S&P 500 fell below 50-DMA on Monday and Thursday during the day, but recovered. The 50-DMA finally fell on Friday, and the index closed below that for the first time since April 23rd. See the market situation.
The 50-DMA is still on a higher slope, but is flattening by rising 3.742 points on Thursday and 4.803 points on Thursday to 3.348 points on Friday.
While this doesn’t necessarily scream sell for these stocks, it should give investors a reason to pause before buying a dip.