It’s Do-Or-Die For Tech Stocks

Authored by Sven Henrich via NorthmanTrader.com,

In early March I mused about a market paradox, one where tech would make new highs on a negative divergence while the $DJIA would not make a new high. This event did indeed transpire and it still may have significant implications as it is so very reminiscent of the action we saw in the year 2000. Same time frame too. Since the correction phase commenced in February we have seen plenty of volatility and solid 2 way action as one would expect during a correction. Yet key to watch during these movements is the emergence of patterns and assess their relevance as they may be indicative of the next big move.

Curiously, as volatile as the action has been $NDX, as an index, does not appear to show much of a correction at all in context of its longer term quarterly trend, hence I asked yesterday:

$NDX quarterly chart: What correction? pic.twitter.com/UG9Xt0SWAR

— Sven Henrich (@NorthmanTrader) April 19, 2018

If Q1 represents a larger correction then please tell me where there is evidence that the most valued and overbought sector, tech, has actually corrected.

We haven’t even tagged the quarterly 5 EMA on $NDX and it’s up 6 quarters in a row. All we’ve had is another higher low and an intra-quarter dip. That suggests a pullback in context of an overbought spike, but no correction. A correction should leave some evidence that there actually has been one. No, from my perch this means that tech has yet to properly correct.

Given the high on a negative divergence and $DJIA failing to make a new high can we draw any conclusions yet as to the next larger move?

Frankly, not quite yet, but charts are suggesting that next week may be very pivotal for tech in particular. A do or die moment.

Zooming in on the weekly chart of $NDX we can observe this pattern: