Technology Dead Cat or Sustainable?
XLK bounced at the 50ma, confirming suspicions that institutions would show up after this rather shallow dip in price action. As it turns out, follow through is propelling us higher, with resistance just overhead. So which is it? Sustainable bounce or a dead cat?
Technically speaking price found support at the 38.2% Fibonacci and the 50ma. The cycle, however, needs a few more days to confirm, which is one of the reasons I seldom play “revert to mean” candidates. I usually wait for price action to move back above the 9ema and wait for a base to form. Neither has happened.
Technology and the Semiconductor Industry Group
We are watching this group closely. Any sustainable bounce in technology would need semiconductor companies to show signs of bullish flow. Conditions are oversold at this point. RSI and stochastic could trigger a long, though support is fleeting. The 50ma is overhead, so any retracement will likely meet resistance there.
NVDA dropped precipitously, presenting a dilemma for this crowded trade. This recent pullback cost traders (-17.36%). That said, NVDA has risen 577.58% since we first listed it as an IBD50 candidate for the weekly watchlist in March 2016. This watchlist coincided with the start of this service. A copy is posted at the end of this article.
Technically speaking NVDA is oversold, with RSI and stochastic setting up a follow through into the holidays. Once again, the 50ma presents resistance for those traders looking for 52-week highs.
With most sectors overbought in their cycles, technology presents the best possibility of a sustainable bounce. The cycle is near an extreme low (chart above), while financials and consumer discretionary sectors are at extremes at the top of their cycles. Considering the current state of the markets, we need to see confirmation before proceeding headlong into the equity markets. Sometimes it’s best to just watch and wait.
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