The rising interest globally in areas such as robotics and artificial intelligence is impossible to ignore. With that said, from an active trader's perspective, the current chart patterns on a few key assets from within this segment suggest that it may be best for the bulls to remain on the sidelines while a short-term downtrend runs its course. In this article, we'll examine the chart patterns of interest and try to determine how technical traders will look to position themselves over the weeks to come. (For further reading, check out: This New Trend Makes Robotics an Industry to Watch.)
One of the most popular exchange-traded products that is used by the retail investment community for gaining exposure to the growing field of robotics and artificial intelligence is the Global X Robotics & Artificial Intelligence Thematic ETF. With net assets of just over $2 billion and holdings from across industrial robotics and automation, non-industrial robots, and autonomous vehicles, there are few other products that offer this type of exposure. Taking a look at the chart, you can see that the price has been trading within a descending channel pattern since earlier this spring. From a technical analysis perspective, it is also interesting to note how the 50-day moving average has consistently acted as an area of resistance and how it has offered profitable entry points for short sellers on each attempted breakout. Active traders will likely continue to hold a bearish outlook on the segment despite the recent move higher, and the bulls may do best to wait on the sidelines for a better risk-to-reward setup. (For further reading, see: Robot ETFs Are Coming of Age.)
There are a slim few in the field of robotics within the healthcare sector that are even remotely close to the level of dominance that Intuitive Surgical has created for itself. Taking a look at the weekly chart below, you can see that the company's success has greatly rewarded investors over the years, and it looks poised to do so for years to come. However, based on the chart, from an active trader's perspective, it looks as though the bulls may want to wait for a pullback in order to capture a more lucrative risk/reward before placing their orders. Notice how the relative strength index (RSI) indicator, which is currently trading in overbought territory above 70, has been trending downward while the price has steadily marched higher. This negative divergence suggests that the bulls are losing conviction in the uptrend and that a pullback could be in the cards. Active traders will likely want to wait to see if they can buy closer to the lower trendline or the 50-week moving average, which is currently trading near $430. (For further reading, check out: 4 Industries That Robots Are Revolutionizing.)
There are few companies better positioned to take advantage of the global trend of increased demand for robotics and artificial intelligence than NVIDIA. The maker of the chips that fuel many of the products has been trading within one of the strongest uptrends in the market, but the chart is suggesting that the momentum could be running out of steam. It is not difficult to see that the trend is not moving at the same rate as it was before and that it has started to move sideways for most of 2018. Active traders will likely watch this chart to see if a break below key support levels will lead to a better entry point. (For more, see: 3 Ways to Trade the Rise in Robotics and Automation.)
The Bottom Line
The rise of robotics, automation and artificial intelligence is hard to ignore, but from an active trader's perspective, it appears as though a pullback over the next couple of months is likely in the cards. Bullish traders may be wise to wait on the sidelines for a more lucrative risk/reward before establishing their position. (For more, see: Another Robotics ETF Is Here.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.