NASDAQ Composite (.IXIC) tech stocks under pressure again
The Nasdaq 100 index slipped back into correction territory on Monday as fears of slower iPhone sales hurt Apple shares, which in turn weighed on the wider technology sector. The latest sell-off has cut short the Nasdaq’s recovery from October’s 6-month lows and raised questions about the outlook for tech stocks going into 2019.
Up until the latest rout to hit the US stock market, the tech-heavy Nasdaq had been outperforming the other major indices on Wall Street by a wide margin. Prior to the October slump, the Nasdaq 100 index’s year-to-date gains stood at about 20%, while the Nasdaq Composite was up by around 16%. In contrast, the S&P 500 had risen by just above 9% and the Dow Jones Industrial Average lagged behind with gains of 8.5%.
The rally of the tech sector during 2018 was led by the so-called FAANG stocks, consisting of Facebook, Apple, Amazon, Netflix and Google (Alphabet). However, it is the FAANG stocks that have been underperforming the broader tech sector since October after investors were unimpressed with their Q3 earnings results. Netflix was the exception, though ironically, its shares have suffered the most during the sell-off as the company is facing stiffer competition in the streaming industry. Apple reported solid numbers, but its results were clouded by weaker-than-expected revenue guidance for the holiday season and after it said it would stop reporting iPhones sales numbers for each quarter.
Whether the Nasdaq 100 can bounce back and resume its rally will depend on how the 2019 outlook evolves in the coming months as there are several factors that will come into play. First, the US economy is expected to slow as the effects of the Trump administration’s fiscal stimulus begin to fade. The prospect of further tax cuts are also looking less likely now that the Democrats control the House of Representatives following the midterm elections. A bigger concern for investors though is the pace of rate hikes by the Federal Reserve. Rising borrowing costs tend to have a dampening effect on both consumer and corporate spending, and if the Fed goes too far too fast, business sentiment could deteriorate sharply.
Also worrying investors is America’s trade war with China. If the US and China fail to make any progress in resolving their trade dispute, the tariff rate on $200 billion worth of Chinese imports will automatically be raised from 10% to 25% on January 1, 2019. Additionally, President Trump has threatened to impose tariffs on all remaining imports from China. An escalation of the trade conflict would not only add to the costs for US companies but would also hurt world trade, weighing on an already weakening global growth backdrop.
Alternatively, markets are likely to cheer any positive developments in the US-China trade story and the bulls might regain control of tech stocks if the earnings slowdown proves to be much milder than anticipated.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
The projected upper bound is: 7,454.20.
The projected lower bound is: 6,784.24.
The projected closing price is: 7,119.22.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 19 white candles and 31 black candles for a net of 12 black candles.
Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 4.8854. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 3 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 38.84. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 14 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -76. This is not a topping or bottoming area. The last signal was a sell 3 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 9 period(s) ago.
Rex Takasugi – TD Profile
NASDAQ COMPOSITE closed down -64.482 at 7,136.393. Volume was 14% above average (neutral) and Bollinger Bands were 20% wider than normal.
Open High Low Close Volume___
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 7,354.25 7,645.24 7,515.80
Volatility: 29 29 23
Volume: 618,943,168 620,970,624 545,337,152
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
NASDAQ COMPOSITE is currently 5.0% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of .IXIC at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .IXIC and have had this outlook for the last 29 periods.
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