The Nasdaq-100 index and big tech stocks have been battered and bruised since the presidential election, losing ground in a major rotation out of traditional growth instruments and into market groups that are expected to benefit in the Trump administration. A basket of tech focused components have held up relatively well despite intense selling pressure and could lead the next recovery wave, whenever it comes.
It’s hard for bull markets to succeed without big tech’s participation, raising doubts about the longevity of the current uptrend. Market history tells us that blue chip led rallies tend to fizzle while tech led rallies sizzle due to a sharp expansion in speculative fervor. In addition, information technology comprises a 21% weighting in the SP-500 index, putting a dead weight on that instrument whenever Nasdaq-100 gets hit by major sell programs.
Microsoft Corp (MSFT) is benefiting from its Dow Industrial membership, with the old school index now trading at an all-time high. Mr. Softee rallied within four points of the 2000 high just above $60 in December 2014 and entered a rectangular correction that yielded a July 2016 breakout. It stair-stepped into long-term resistance after a strong third quarter earnings report and has been testing that level for the last 6-weeks.
Short-term price action has carved the outline of cup and handle pattern, with the stock rallying back to resistance on November 17th and contracting into narrow range price bars that could yield higher prices in coming days. A C&H breakout would also signal a breakout above multi decade resistance, with the power to draw in broad buying interest and generate a powerful trend advance.
Qualcomm Inc Corp (QCOM) tested the 2000 Net bubble high at $100 in 2014 and rolled over in a downtrend that continued through 2015, finally coming to rest at a 5-year low in February 2016. The subsequent recovery wave stalled at the .618 Fibonacci selloff retracement level in September, giving way to a trading range with support near $64. It’s been testing that level for the last two sessions.
Intermediate market cycles will eventually turn in the bulls’ favor if the stock holds the 2-month trading range, supporting a breakout above harmonic resistance while generating a fresh upside target in the mid-$70s. Bulls could still prevail if the range breaks and the stock drops into the 200-day EMA just above $60, but the upward path will then have to deal with greater overhead supply.
Texas Instruments Inc (TXN) has survived twin onslaughts, first from the Nasdaq-100 selloff and more recently from a chip stock plunge that dropped PHLX Semiconductor Index (SOX) more than 5% in a single session. It cleared March 2015 resistance in June 2016 and rallied strongly to a 16-year high at 72.58 in July. A 4-month rectangle pattern got bought, triggering a late November breakout that posted another multi-decade high earlier this week.
The stock sold off with chip stocks on Thursday, dropping into the 50-day EMA and breakout support between $70 and $71. This price level should mark a low risk buying opportunity, ahead of a strong bounce and continuation of the persistent uptrend. A decline into the red trendline will signal a failed breakout, negating the bull setup while the .786 retracement of the Dot.com bear market decline at $81 offers a logical upside target.
The Bottom Line
Nasdaq-100 has struggled since the election, caught in a broad trading range between 4600 and 4900, but a handful of big tech components have held up better than the index. That price action has generated bullish divergences, making them buying candidates for the next recovery effort, which could unfold as early as next week.
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