Is It Time To Sell Tech Stocks?

Below is a transcript from Monday's Morning Market Hit video above (charts are at the bottom).

Welcome to Shortview Trading. My name is Chris Watling. I'm the CEO and Chief Market Strategist of Longview Economics and Shortview Trading, and this is your Morning Market Hit for Tuesday, August 27th. It's around 9:00 a.m. London time. So, if you want to trade equity index futures—whether you want to go long or short S&P 500 equity index futures, FTSE, NASDAQ, or DAX on that one to two-week swing trading timeframe—what should you think about? How should you go about doing that? What factors really matter? That's what we're going to dig into in this video.

The first thing you want to think about is the price action and the context of the market at this current time. That's critical as you start deciding whether to put in a long or short equity index trade because, interestingly, over the last few weeks, we've had a pretty strong relief rally—a pretty strong wave 2 relief rally in the S&P 500. As you can see on this candlestick chart we're showing now, from the August 5th intraday lows, the market has rallied quite aggressively. It has blown through a whole bunch of key resistance levels, starting with the lows in late July, then pushing through the uptrend channel and the 50-day moving average, rallying very aggressively over the course of the last two or three weeks. The picture in the NASDAQ 100 is pretty similar, though not quite as impressive. As you can see from the NASDAQ candlestick chart, it's a strong relief rally but not blowing much through its 50-day moving average zone, sort of stalling around that level over the last few trading sessions.

Now, as we were coming into last week, we started flagging the idea that a number of our short-term market timing models were getting towards sell levels. Indeed, by the middle of last week, we had a sell signal pretty much across the board. Just take a look at the technical scoring system for the S&P 500 that we're showing now. This aggregates a whole bunch of classic technical indicators—things like the RSI, momentum, and all sorts of technical models that are aggregated and scored to give us the scoring system for technical factors for the S&P 500 in this instance. As you can see, it got to strong buy levels at the lows on August 5th; it was a bit early on—about a week or so before that—and then back on to sell by the middle of last week. So, very strong movement in this model as the market rallied. Similarly, if you look at our risk appetite scoring system, it was equally on buy back in early August, and by the middle of last week, the scoring system was triggering a sell once again. That was a consistent message across a whole range of short-term market timing models, like the put-to-call ratio and many others that we publish each day in our daily risk appetite gauge. All of them reached sell by the middle of last week. It wasn't just the short-term general market timing models; it was also the case when we looked at our tech-centric models.

For example, look at the NASDAQ put-to-call ratio we're showing now. It moved wonderfully from buy in early August back to sell by the middle of last week and started rolling over in the last couple of trading sessions. So, the question is, what next? How should one go about trading this market? Interestingly, there was another classic technical price pattern signal last week—indeed, on Thursday, key-day reversals of a bearish type by the NASDAQ 100 and the Philly SOX Index, the Philadelphia Semiconductor Index, dominated by Nvidia, AMD, Broadcom, and other stocks. Both of those indices put in key-day reversals, as you can see in this Philly SOX candlestick chart we're showing now. There's no 100% hit rate from any technical price pattern, but a bearish key-day reversal—which is defined as an index that opens above its prior intraday high and closes below its previous intraday low, engulfing the prior day's price action and trending down at the end of an uptrend—is pretty interesting. As you can see on the Philly SOX chart, that pattern has worked pretty well for a one- to two-week trade on several occasions in the last few months.

Last Thursday, we had that in the NASDAQ and in the Philly SOX, coupled with what you saw on the short-term market timing models, and it starts to be quite a powerful message for moving short on the equity index futures in the tech area of the market. To see how we're playing it today, how we're trading this market, and to get an update on our daily models, updated commentary on how we see the market price action, and our explicit recommendation on whether to go long or short on equity index futures on a one- to two-week basis, please take a free trial of the daily risk appetite gauge. Just click on the link below, and we'll send it to you for a bunch of trading sessions for free. If you're a subscriber, it'll be in your inbox around 9:00 a.m. London time, every business trading session.

So, what are we watching over the course of the rest of this week? Obviously, we're already into Tuesday, but there's still a lot going on. There are Nvidia's earnings coming out on Wednesday after U.S. market hours. That is critical—a key stock, of course, the biggest stock in the Philly SOX, and one of the biggest stocks in the index overall. That is key to market thinking, and volatility is likely to follow that, so it'll be watched closely. Secondly, there's a lot of inflation data out this week, particularly towards the back end of the week. We've got German inflation, the first estimate of French and Italian inflation, Eurozone inflation, and then, on top of that, we've also got the U.S. PCE deflator on Friday as well. So, lots of updates on inflation that will be watched closely. Finally, there's a bunch of other stuff going on in the U.S. We've got the Chicago PMI at the back end of this week, Conference Board Consumer Confidence, and a whole bunch of earnings out of China. That's a bit of a feature this week—a lot of Chinese banks are reporting earnings. That, of course, is critical as well. How is the Chinese financial system looking? That'll give us a bit of an update on that.

So, that's it from us. That's your Morning Market Hit for Tuesday, August 27th. Thank you for listening. Please do like and share these videos on YouTube, subscribe to our YouTube channel, or follow us on Twitter, LinkedIn, and Facebook. Thank you for listening. Stay safe and trade well.

FIG 1: S&P500 futures candlestick shown with its 50 & 200 day moving average

FIG 2: NASDAQ100 futures candlestick shown with its 50 & 200 day moving average

FIG 3: S&P500 Technical Scoring System

FIG 4: S&P500 Risk Appetite Scoring System

FIG 5: NDX100 Put To Call Ratio

FIG 6: Philly SOX Key Day Reversal