Tech stocks have been sold aggressively since Donald Trump won the presidential election, dropping many widely held issues into deep support at their 200-day EMAs. These levels should eventually trigger strong bounces that reach decline midpoints as first upside targets. It’s even possible that bearish sentiment will dissipate and generate 100% V-shaped recoveries, just in time for Wall Street’s year-end accounting.
The Nasdaq-100 sold off for more than a week into the election and bounced strongly after the Trump victory but got sold aggressively one day later, as part of a vigorous rotation out of growth stocks and into financial, cyclical and commodity plays. Speculation rather than data has driven this bilateral tape, raising odds for reversals that bring stock and bond prices closer to reality, with the tech sector set to benefit from that reversionary swing.
Apple Inc. (AAPL) bounced off deep range support in the low-90s in May, sold off in August and resumed its upward trajectory in September, in reaction to the Samsung Galaxy Note 7 scandal. The recovery wave reached a 10-month high ahead of Oct. 26 earnings, which triggered a strong sell-the-news reaction. The decline just filled the September 13 gap while reaching deep support at the 200-day EMA.
On Balance Volume (OBV) entered a distributive phase after the October 11 high, with speculators getting out of the way ahead of the news while short sellers and exiting shareholders took control after the release. Weekly Stochastics has now reached an oversold technical reading while the monthly indicator holds a buy cycle that started in July. This multi-time frame structure predicts a sizable bounce once short sellers take profits, which should happen this week.
Facebook Inc. (FB) market leadership has been tested since the stock posted an all-time high at $133.50 on Oct. 25th, just ahead of a quarterly report that raised fears about slowing growth. It gapped down more than seven points after the news, finding support near 120, and bounced into the gap ahead of the election. The stock got caught in Thursday’s big decline, posting a wide range selloff bar that undercut the 200-day EMA at 118.50.
OBV fired on all cylinders into October 24th, hitting an all-time high, with profit-takers then triggering a distributive phase that accelerated after the election. An inside bar following Thursday’s selloff signals indecision that should eventually yield a strong bounce that fills the gap and tests the underside of the 50-day EMA, falling from 126. Monthly Stochastics has rolled over into a sell cycle, telling dip buyers to take profits aggressively.
Alphabet Inc. (GOOGL) stalled below $800 at the end of 2015 and entered a broad trading range with support below $700. It broke out on July 29, but the rally failed to generate momentum, giving way to choppy sideways action that resolved with a secondary breakout on Oct. 18. That buying spike was short-lived, reversing into early November in a failed breakout, with the decline then filling the July 28 gap at 765.
The downdraft reached within 3-points of the 200-day EMA on Friday, making it hard to issue an immediate buy call. This pattern will look more buyable if it undercuts long-term support and drops as low as $750, before reversing and closing back above $770. Even so, the next bounce should be sizable, lifting the stock back up to $800 and the underside of the 50-day EMA.
The Bottom Line
Tech stocks have been pummeled since the presidential election, in a major rotation that favors financials, cyclicals, and commodities. However, the group is now oversold, raising odds for strong bounces that shake out late-to-the-party short sellers. Apple and Alphabet look like best bets in that recovery wave while Facebook has more work to do after a poorly received earnings report.