Is the correction over? It may not look that way yet in some market indices — and many stocks for that matter. But under the surface, the Nasdaq Composite and many of its most influential tech stocks’ price charts are warning otherwise and advising investors it’s nearly time to buy more smartly.
If you’re a superstitious kind of investor, the proposition of the market having bottomed isn’t going to be an easy one to accept. The Nasdaq Composite’s corrective loss does stand at the numerologically unlucky 13%. That low also formed over 13 days. And of course, investors are still faced with the month of October. Boo!
Still, there is solid evidence indicating a low has formed.
The fact is most corrections don’t grow into full-blown bear markets. And 13% isn’t a run-of-the-mill pullback unworthy of becoming an intermediate low. Also and appreciatively, the VIX — or fear index — has optimistically warned investors that overly confident bulls have been sufficiently spooked.
Of course some may see the massive disconnect between a still-struggling Main Street and a Wall Street fueled by the Federal Reserve and a handful of trillion-dollar, hyper-influential growth stocks and believe it has to get uglier first. That’s understandable, but the reality is it doesn’t.
In all fairness, what is needed to confirm the Nasdaq’s bottom is a market-based follow-through day. The bullish price and volume indicator has proven a robust one without equal. The fact is no major low in the market has developed without a follow-through day in place.
Now and at day four of the follow-through day count for the Nasdaq, an index which led the broader market up from the Covid-19 March low, it’s time to seriously look at the price charts of three tech stocks well-positioned for buying within the framework of a new market rally.
Tech Stocks to Buy: Tesla (TSLA)
Source: Charts by TradingView
The first of our tech stocks to buy is Tesla. On the daily time frame, the EV heavyweight has put together an unsurprisingly more volatile, but constructive higher-low, double-bottom pattern. Friday’s early action has confirmed the formation’s second pivot low.
Tesla’s confirmation is demonstrating technical leadership at this point within the large-cap tech-stock arena. It’s obviously bullish. However, I’d like to see stochastics swing slightly higher to generate a crossover and an extra layer of protection for investors before making a buy decision.
Of course, a follow-through day will also be likely critical to the double-bottom’s durability. As such, a tiny bit of patience (in the scheme of things) in TSLA (and possibly buying into a slightly less picture-perfect entry) makes sense.
Apple (AAPL)
Source: Charts by TradingView
The next of our tech stocks to buy are shares of Apple. Here, investors may want to look at the weekly timeframe rather than the daily. This massive tech company is less volatile and not exactly in the same category of momentum investing as Tesla.
Technically, the weekly chart in Apple shows September’s correction has yielded a test of the 38% retracement level from the stock’s March low. Favorably, stochastics are just entering oversold territory too. Nice, right? Well, some traders will tell you otherwise. With its recent low, a full 25% removed from its all-time-high, shares are in a bear market. Boo! Wrong.
The advice today on this tech stock to buy is simply wait for confirmation of a bottom. Reasonably, the expectation is that will happen next week alongside a FTD in the Nasdaq.
Nvidia (NVDA)
Source: Charts by TradingView
The last of today’s tech stocks to buy is Nvidia. Here, I’ve elected to focus on the weekly chart in the semiconductor giant. Shares modestly breached a slightly aggressive trendline formed off NVDA’s Covid-19 bottom formed back in March. But the slight failure has been quickly countered with the stock reversing back above support.
What I’m recommending in shares of NVDA is similar to the advice in AAPL. First, a follow-through day is important. That could happen today if a sufficiently strong rally develops into the closing bell. Either way, I’m also advising investors wait until next week to buy Nvidia, and only get in after a pivot low has been confirmed on the weekly chart.
Right now, this buying strategy sets up on a rally through this week’s high of $509.08. The entry for this tech stock sacrifices a couple percent from current levels. More importantly, though, investors will have the market acting as a tailwind should it signal and the opportunity for less dicey, big-time profits.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
