A surprise “no-QE” move by the European Central Bank on Thursday has stocks rolling lower in a way that hasn’t been seen since October. This comes just after the end of the most consistent run of the S&P 500 above its five-day moving average (29 days) amid a push in measures of investor sentiment and positioning to bullish extremes.
Sure, December is seasonality the strongest month of the year for stocks. And sure, the Bank of Japan and the People’s Bank of China have all recently unleashed monetary policy stimulus. And all the while, investors have been operating under the assumption that as long as the cheap money is flowing from somewhere, stocks will only go up. But bigger catalysts threaten future gains.
For one, the European Central Bank, which has been promising government bond purchases for years, is legally prohibited from doing so. Two, a tightening of the job market will keep pressure on the Federal Reserve to start its rate hike campaign in the first half of 2015. Three, we are on the cusp of another budget battle in Washington.
Market insiders have already been pulling out. High-yield junk bonds have been under pressure for months. The NYSE Composite Index, a broader measure of stock market performance, is contending with triple-top resistance. And market breadth, or the percentage of stocks participating to the upside, by most measures is below the highs seen during market rallies in July and September.
In fact, I’m seeing some significant selling pressure hit a number of tech-sector sweethearts. Here are five to watch out for.
Tech Stocks in Trouble — Amazon (AMZN)
Shares of internet retailer Amazon.com, Inc. (AMZN) were slammed back in October on poor earnings, but have since bounced back in a big way. Unfortunately, concerns over profitability in the current quarter are weighing on AMZN stock price, pushing shares back below their 50-day moving average. With initial reads on the holiday shopping season disappointing, Amazon stock looks vulnerable to a test of lows hit in May and October.
Tech Stocks in Trouble — Yahoo! (YHOO)
A solid IPO from Alibaba (BABA) — of which Yahoo! Inc. (YHOO) owned a large share — as well as good quarterly results lifted YHOO more than 25% since October. An impressive run, to be sure. But profit-taking is materializing, pushing the stock down through its 20-day moving average for the first time since early October and out of a big overbought condition for the first time since September.
YHOO looks vulnerable to a test of the 50-day moving average.
Tech Stocks in Trouble — Twitter (TWTR)
Social media poster child Twitter Inc (TWTR) has been in the doldrums for months after reporting disappointing user growth back in October. Shares have been flatlining near $40 since then as doubts grow over the company’s ability to broaden the appeal of its service.
Shares are now falling through the lower end of its three-month trading range and could potentially fall all the way down to its May lows near $30 before rebounding. In response, I’ve recommended my Edge Pro subscribers profit from the weakness with a December put option position that’s already up more than 10% since it was initiated on Monday.
Tech Stocks in Trouble — eBay (EBAY)
Like Amazon, eBay Inc (EBAY) is threatened by any disappointment that materializes in consumer spending this holiday season. Hopes are high, given the massive comedown in energy prices since June. But a lack of wage growth continues to weigh on spending.
Shares are contending with triple-top resistance near $55 and look ready to retest support near $50 — a 10% decline from here.
Tech Stocks in Trouble — Google (GOOG)
After participating in the initial broad market rally out of the October 15 low, Google Inc (GOOG) has rolled over and is drifting to the downside — continuing a medium-term downtrend that started in September — on concerns over ad spending and the rise of competitive video ad offerings from Facebook and Twitter.