LARGE CAP TECHNOLOGY: WARNING SHOT ACROSS THE BOW
In my opinion, every Wall Street analyst (technical or fundamental), investment strategist or economist needs some type of defined guideposts to aid in making a new decision or confirming a current decision.
Considering the Technology complex’s very sharp downward reversal on Friday, below are a few guideposts I am using when it comes to gauging its current condition.
Is it a coincidence that the S&P 500 Information Technology Index reversed direction after having run up to resistance, as defined by a “previous price peak?” I think not.
When fundamental analysts talked down the Technology complex last Friday, were they looking at a price chart? Unlikely, but maybe they should have been. In viewing the chart below, I find it interesting how both the top and bottom ends of a trading channel have consistently provided actionable resistance (red line) and support (green lines) levels.
Finally, a price pattern used to help discern a potential change in price trend is known as a “Key Outside Reversal” pattern. As pointed out last Friday (6/9/17) when I sent out the most recent Day Hagan research report, this pattern had developed in the Large Cap Technology complex. To reiterate, the pattern shows an intraday high above the previous day’s intraday high and a low below the previous day’s intraday low, as well as a close below the previous day’s intraday low—some technical analysts gauge a close below the previous day’s closing price. The wider the intraday price range on the reversal day and the heavier the volume, the greater the odds that a price trend reversal is in the making. A completion of this negative reversal pattern increases the odds that an overhead resistance level has been identified. It also implies an initial top of yet-to-be-determined duration.
So, what do you do with these observations? Tactically, this would suggest reviewing equity positions directly or indirectly influenced by the Technology complex, while tightening stop loss points across the spectrum. New highs by the sector on expanding breadth and/or a continued period of outperformance versus the S&P 500 will nullify these observations. However, a rally back up towards the previous high on narrow breadth would be bearish.
Have a great week. Please know that Day Hagan Asset Management appreciates your support and hard work!
Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management
—Written 6.12.2017. Chart sources: Stockcharts.com.