The S&P 500’s ability to move above the top of its range is causing some concern among traders, especially since this August rally has gone against the historically weak seasonality that the month is well-known for.
This morning’s technical landscape is starting to fill up with a number of potentially bullish breakouts, although there is one popular stock that the short-term technicals are starting to concern us. The Trinity of Technology for today includes two bulls and one bear: Alibaba Group Holding Ltd (NYSE:BABA), Apple Inc. (NASDAQ:AAPL) and Nvidia Corporation (NASDAQ:NVDA).
Alibaba Group Holding Ltd (BABA)
Alibaba released a positive earnings report this morning, sending shares about 5% higher in the premarket trading. The shares have been entrenched in a technically strengthening rally that kicked-off in June and now has shares of the online retailer moving to their highest point in the last year.
What is more interesting about the move in the shares is that they broke above their top Bollinger Band yesterday, ahead of earnings. It suggests that the market was “buying the rumor,” which can sometimes be bad, but not likely here.
Alibaba stock has a large amount of short interest positioned against it, which makes the Bollinger Band break increasingly bullish as the shorts are now facing growing losses. Technical analysts love it when a bullish chart forms and short interest is high, as it triggers a short covering rally. Right now, the charts look open to $104 for Alibaba shares.
Apple Inc. (AAPL)
Apple Inc. is on the other side of our list today. The stock has done well lately, rallying more than 17% from its June lows, but the rally has extended Apple shares to a likely turning point.
Apple stock entered oversold territory in early August, and for a while looked like the shares would defy gravity. Now, we’re seeing a slowdown in the momentum of the shares at the same time that it continues to hover in oversold territory.
In Apple’s case, traders may be holding on a while longer, as the company will reveal their newest products in about a month, but you have to remember that their “reveals” have under-impressed investors.
Apple shares are trading just below their April highs that were around $110, but the momentum is shifting and trader will start to sweat a little and think about locking in a nice gain from the shares’ short-term bull run. In addition to April highs, Apple stock will face pressure from its 20-month moving average, which is at $112 and declining.
For now, the technical balance of power is moving in favor of the Apple bears, though you’ll have a chance to trade this on bullishly soon.
Nvidia Corporation (NVDA)
Nvidia is preparing their earnings release for this afternoon after the close. This stock has been a juggernaut in the market with a whopping 148% in gains over the last 12 months. The growth has been steady, except for when they announce earnings, when Nvidia shares tend to jump higher.
We just preached the dangers of an overbought stock, but in Nvidia’s case overbought can and has led to even more overbought situations. As pointed out, this stock has defied gravity.
The stock pulled back from the $60 level over the last few days, which is good as it suggests that some traders are paring back positions ahead of the report instead of buying the rumor.
Either way, we’re interested in this stock from a technical perspective. An earnings miss this afternoon will cause a quick reversal and pullback to the $52 level, at which point the technical traders will step in at the 50-day support. A beat will continue the march higher into fresh new high territory.
As of this writing, the Johnson Research Group did not hold a position in any of the aforementioned securities.
