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Don’t Bet on a Bottom Being Put in Here

Technical failures, internal indicators, investor sentiment and history all point to more selling ahead


Despite better-than-expected earnings from many stocks in the technology sector, the Nasdaq plunged 1.8% on Friday. Even though 32 of 40 technology companies met or beat estimates, according to, the sector was the second-weakest performer.

And The Wall Street Journal reported that “money managers continued to unwind last year’s winning bets.” Those bets were in social media, cloud computing and biotech companies. The iShares Nasdaq Biotechnology (IBB) lost 2.5%.

Most of the damage to the tech sector resulted from losses in some big-name stocks. (AMZN) fell 9.9% after it missed earnings estimates by one cent and issued cautious guidance. Netflix (NFLX) fell 6.4%, and (PCLN) lost 4.9%. Broadcom (BRCM) dropped 4.4% despite topping earnings estimates but downplaying its revenue outlook.

The Thomson Reuters/University of Michigan’s consumer sentiment index for April rose to 84.1, which was above economists’ estimates.

At Friday’s close, the Dow Jones Industrial Average fell 140 points to 16,361, the S&P 500 fell 15 points to 1,863, and the Nasdaq lost 73 points at 4,076. The NYSE’s primary market traded 695 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 2.1 billion shares. On the Big Board, decliners outpaced advancers by 1.9-to-1, but on the Nasdaq, decliners were ahead by 4.8-to-1.

For the week, the Dow fell 0.3%, the S&P 500 fell 0.1%, and the Nasdaq was down 0.5%.

SPX Chart
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Chart Key

The S&P 500 fell away from the important resistance line at 1,885 on Friday. The next important support zone is at 1,850 to 1,858, and it is crucial that it holds above the 50-day moving average at 1,858. MACD appears to be turning down.

DJI Chart
Click to Enlarge

The Dow industrials failed in their attempt to break to a new closing high last week. The old closing high was made on Dec. 31 at 16,576. The next important support is at the 50-day moving average at 16,303, and then the support line at 16,175.

Nasdaq Chart
Click to Enlarge

The Nasdaq failed to reverse its intermediate downtrend by falling from its 20-day moving average at 4,128 and entering the support zone under 4,080. MACD is falling.

Conclusion: The Nasdaq and Russell 2000 are very weak compared to the Dow Jones Industrial Average and S&P 500. Friday’s pummeling of tech and biotech stocks could have been a selling climax had volume been higher. But with just over 2 billion shares trading on Nasdaq, the likelihood of a bottom is not high despite the big percentage declines of some key stocks in the sector.

In spite of the recent selling, not a single one of our internal indicators is oversold yet, which means more selling is possible. And the AAII Sentiment Survey’s bullish reading jumped from 27.22 to 34.5 in just one week, which is also a negative for the near and intermediate term. Our momentum indicator, which tracks the power of the market, is weak on rallies, and that too is bearish.

This week we will end the six-month period that is traditionally the strongest and enter the May-to-October time frame, which is historically a weak period for stocks. Last year was an exception, and the market was strong, but the nature of the recent selling of small- and mid-cap stocks is not a positive sign. Unless the techs pick up significant upside volume this week, it is likely that the next six months are going to be a struggle.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Article printed from InvestorPlace Media,

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