Will Santa Claus deliver the seasonal rally that investors have been accustomed to? The rally, for those unaware of the details, is supposed to occur over the last five trading days of the year and the first two days of the New Year. So far there hasn’t been a glimmer of hope for the rally as the S&P 500 has moved lower.
Part of the draw lower continues to be large cap technology stocks, which are experiencing losses thanks to doubts that the technology stock dominance will continue into 2018.
Among the laggards in the tech sector are headliners like Apple Inc. (NASDAQ:AAPL) and Tesla Inc (NASDAQ:TSLA). Meanwhile, the stronger-then-expected retail results have brick-and-mortar retailers like Best Buy Co Inc (NYSE:BBY) punching through to new highs.
Here are the technical game plans for each of these stocks:
Apple Inc. (AAPL)
The headline news regarding lighter-than-expected sales of the iPhone X are bringing AAPL shares from the top of what has become a daunting trading range. Apple stock is now sitting at the bottom of that same range, in a must-win situation that is likely to determine whether 2018 starts on a 10% rally or selloff.
- Since the beginning of November, AAPL shares have been locked in a tight trading range between $170 and $175. This range has had a tight grip on Apple stock; however, the early December trip to $170 chipped-away at the support level, indicating that the next test would be more critical.
- Overhead, the shorter-term trendlines are beginning to move into bearish patterns. This suggests that AAPL stock is falling victim to fast technical selling as it approaches its critical 50-day moving average. The 50-day currently sits just under $170. A break below this trendline is going to bring a large increase in selling pressure for Apple.
- The Chande Trend Meter is now registering neutral readings for AAPL stock; the last neutral signal we saw from the indicator was just ahead of the decline from $160 to $148 in September.
Tesla Inc (TSLA)
Elon Musk is firing-up the P.R. and headline machine as TSLA shares are slumping into the year-end trade. This is a pattern that Tesla traders are used to seeing as the hype behind new product announcements, or in this case hints, are often used to shore-up the price when it starts to lag the market.
In this case though, TSLA stock has three bearish technicals working against it.
- Since the peak in September, Tesla stock has put in a lengthening series of lower highs and lower lows. This is a telltale sign that traders are exiting TSLA stock on any strength by selling into rallies.
- Tesla stock’s 50-day moving average turned bearish in mid-October at the same time the stock was unable to break back above this key trendline. After a brief stint above this trendline this month, TSLA shares have broken lower again. This strengthens the bearish case against Tesla stock.
- The stock’s 50- and 200-day moving averages just completed a bearish “Death Cross” pattern. This indicates that TSLA stock’s long-term trend is becoming more negative as momentum leads to the downside.
Best Buy (BBY)
The surprise (again) for this shopping season is that the brick-and-mortar retail shopping stores continue to thrive in the holiday season. Companies like BBY and Target Corporation (NYSE:TGT) once again displayed that shoppers actually enjoy getting out and milling through the wares to find the perfect gift.
Best Buy shares are now trading back at their highs, a trend that they started this time last year. Is it time to exit BBY shares?
- Shares of Best Buy have been moving in a parabolic rally from the beginning of November to today. The holiday shopping results are giving BBY stock, and many other retailers, a boost. Historically, this rally moves into early January and then sees some “sell the news” pressure.
- Recently, Best Buy shares lost ground in January. Over the last five years, the “sell the news” seasonality for BBY stock has it finishing January in the green only 40% of the time and the average performance for the January is a loss of 3.5%. This indicates that Best Buy heads into the New Year with a strong headwind.
- The current technical charts for BBY suggests that a seasonally weak January will likely push the stock towards support at $62, a decline of about 10% that would count for a “healthy correction” by most technical traders’ books. Traders may want to watch this as a level to buy Best Buy shares.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.