The tech-heavy Nasdaq 100 Index rose nearly 200 points on Tuesday, relieving deeply oversold technical conditions while allowing nervous shareholders to get a good night's sleep. However, sector headwinds will likely continue in the coming months, lowering the odds that big tech stocks will return to bull market highs. As a result, investors with heavy exposure may wish to take partial profits on this bounce and use the cash to pick up downside protection.
Dow component Apple Inc. (AAPL) has jumped to a weekly high above $180 this week but is still trading well below the descending 50- and 200 day exponential moving averages (EMAs), carving a major decline that could eventually reach $160. (See also: Wait for $160 Price Level to Buy Apple Stock.) More importantly, the stock is now stuck within a massive trading range that could dictate price action into the next decade, denying profits to trend-followers.
Three of the five FAANG members face the threat of local and foreign government investigations into anti-competitive behavior and political bias. This surveillance is likely to ramp up into the 2020 election, adding a stiff headwind to a group that is already dealing with major exposure from the trade war. Lower interest rates won't solve either of these issues but could put a floor under the group, limiting the downside.
Facebook Inc. (FB) stock posted an all-time high at $218.62 in July 2018 and fell nearly 44% into year end. The 2019 oversold bounce reversed at the .786 Fibonacci retracement level near $200 in April, while the May sell-off broke support at the 50- and 200-day EMAs. The stock bounced with the broad market on Tuesday, but heavy resistance above $170 is likely to slow progress or trigger another reversal.
The monthly stochastic oscillator entered a buy cycle at the start of 2019 and crossed into a sell cycle after reaching the overbought level in May, predicting relative weakness that may continue into the fourth quarter. The company faces little exposure from trade wars, but privacy issues, bias allegations, and a cold-hearted CEO suggest that weak international sentiment will continue through next year's election.
Alphabet Inc. (GOOGL) shares topped out at $1,291.44 in July 2018 and sold off to horizontal range support just below $1,000 in December. The 2019 uptick unfolded at the same trajectory as the prior decline, completing a 100% retracement into the prior high in April. The stock broke out immediately but added just five points before reversing in a major bull trap that has relinquished more than 200 points in the past six weeks.
Price action since April may be carving an Elliott five-wave decline pattern, with a huge breakaway gap between $1,200 and $1,296, followed by this week’s third wave continuation gap between $1,067 and $1,103. Heavy selling volume has matched the decline's intensity, dropping accumulation readings to four-month lows. Meanwhile, the stock is fully engaged in a monthly sell cycle that could remain in force for another six months.
Amazon.com, Inc. (AMZN) stock posted an all-time high at $2,050.50 in September 2018 and lost more than 35% into year end. The 2019 rally fizzled out less than 100 points below last year's peak, giving way to a downturn that has now settled at the 200-day EMA. The monthly stochastic oscillator hit the overbought level in May and has crossed into the first sell cycle of 2019. This should keep downside pressure on Amazon into the third quarter.
This stock has carved a stronger technical pattern than FAANG rivals, except for Netflix, Inc. (NFLX), but Amazon faces heavy exposure from Chinese and Mexican tariffs in coming months. These duties will take a toll on profits, whether the company raises prices or lowers margins, compounding headwinds from growing allegations of anti-competitive practices, political bias, and calls for a break-up.
The Bottom Line
Big tech stocks have bounced strongly off corrective lows, but new highs are unlikely between now and year end.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.