techs in trouble ,great article

Blue chips stocks may be in bloom but the failure of technology and growth stocks to advance in the recent weeks is becoming a concern, especially if you are long technology at this time.
Since mid-April, the blue chip DOW and tech-laden NASDAQ has moved in opposite directions with the DOW gaining altitude at the expense of the technology sector.

We are seeing some safe-haven capital flowing into the perceived safety net of blue chip stocks. Technology is struggling to hold after breaking above a key five-year pivot point at 2332.92 on January 11. The failure of technology issues to advance is especially a concern given that we have seen numerous blow-out quarters reported by bellwether technology stocks.

Given the current hesitation in the NASDAQ, I have gradually cut back on trading the tech sector as the prevailing market risk is higher than what I feel comfortable with. This is not to say that trading opportunities in technology are absent but there are currently far better short-term trading opportunities in the commodities such as oil and gold.

The NASDAQ fell below technical support of 2300 on Wednesday in intraday trading, the first breach below 2300 since March 21. But while not a major concern, the key now is to see how the technical support holds in the upcoming sessions. The index is showing moderately bearish signs at the time of writing on declining Relative Strength and internal strength.

The failure to hold at above the five-year pivot point is a concern. The subsequent decline below the 20-day and 50-day moving averages at 2335 and 2313, respectively, is also a warning. Watch if the index can hold at the 100-day moving average of 2290 or we could see a subsequent slide down to the 200-day moving average at 2223.

To make matters worst is the sharp double top shown on the chart after successive failures to break higher at 2375.45 and 2378.32. We did see a spike to above 2360 in the subsequent sessions, but the trend thereafter has been down, indicated by lower highs and lows.



The MACD is also trending lower while exhibiting a sell signal. The key now is for the NASDAQ to show some support at the 100-day moving average; otherwise, we could see a return to the former sideways Rectangle at between 2230 and 2330.

There are also other technical indications the NASDAQ may be experiencing some topping action on the charts.

Breadth on the NASDAQ, as indicated by the advance-decline line, remains inconsistent. The daily reading has been below 1.0 (more declining versus advancing issues) in six of the last nine sessions. In a sustainable up market, you want to see more consistent breadth similar to what we saw in January when 70% of the daily readings were at above 1.0.

On the sentiment side, the daily readings remain relatively strong with the last 11 consecutive sessions coming in above the bullish 70% level. While encouraging, the readings are well below the sentiment readings we saw in the period from January to March.

Another way to look at the NASDAQ is the VXN, based on NASDAQ index option prices. The VXN is near its lowest level since 1991, suggesting a near-term top may be in the works.



So what to do? Technology will always be the main area to make money going forward but at this time, there are better trading opportunities in oil and gold.

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