In a market made up of stocks, many of 2020’s leading tech stocks have become relative and even ugly absolute losing propositions this year. What should we make of the action? Often enough and as indicated on the following three price charts, it’s time to simply trade tech stocks long and short, rather than seeing a simple one-way path to riches on Wall Street. Let me explain.
Rotations. Corrections. Both are bound to happen. Even to the best stocks. And even if they’ve been very dearly held tech stocks. And in late February, it’s turned into this sort of volatile and less uniform type of combination for many recent leaders.
Today the Dow Jones Industrials are up 7.25% in 2021. It’s a nice gain for less than three months work. The strength also represents all-time-highs for the blue-chip index. More impressive? The bellwether has smartly rebounded from a 4.7% decline, which finished earlier this month to become determined leadership for the market.
But much of the Dow’s display of strength has come at the expense and a rotation out of tech stocks. The Nasdaq is up a lesser 4.50% after unraveling a much more significant 12.5% over the same period. Yet blue-chip tech stocks Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT) and synonymous with the Nasdaq are hardly representative of the rotation’s worst damage.
What’s crueler? There is Wall Street’s 2020 rock star fund, the uber-tech friendly and heavily concentrated Ark Innovation ETF (NYSEARCA:ARKK). The ETF sports Tesla (NASDAQ:TSLA), Square (NYSE:SQ) and Teladoc (NYSE:TDOC) as its top three holdings and 21% of the portfolio. Moreover, ARKK is grappling with a flat year-to-date performance after plunging nearly 34%. Yikes!!??
So, what’s an investor to do? Investing 101 was nearly a full year ago when buying and throwing darts worked as risk assets across-the-board crashed during an epic novel coronavirus driven market bottom. Today, it’s time to go value hunting for tech stocks offering compelling value on their price charts. But it may also be a smart time to say goodbye, not “good buy” to other names which may have seen their best days for the foreseeable future.
Tech Stocks to Trade: Amazon (AMZN)
Source: Charts by TradingView
The first of our tech stocks to trade are shares of Amazon. And it’s a buy. The diversified tech giant has been lagging the Nasdaq since last summer. In fact, investors buying shares over the past several months are, for the most part, underwater. And this past month’s slippery drop has been instrumental in that pain in yielding a year-to-date decline of nearly 5%.
But the overall price action on the AMZN stock price chart is now shaping up as a sneaky gift for investors. Today the sum of all that lethargy is a double bottom pattern.
Some traders may rightfully see a failed triangle and bear flag forming against prior support. It’s understandable. However, with the second pivot reinforced by the 38% retracement level, a weekly inside candlestick strengthening the pattern and a bullish stochastics crossover in place, I’m upbeat there’s better weeks and months ahead for Amazon bulls.
I’d suggest waiting for shares to signal through the inside weekly candlestick. And should AMZN acquiesce, consider a bullish vertical such as the June or July $3300/$3600 call spread for positioning in this tech stock.
Advanced Micro Devices (AMD)
Source: Charts by TradingView
Advanced Micro Devices is the next of our tech stocks and like AMZN, it’s a buy. This semiconductor outfit has been a bit weaker than Amazon in 2021 with shares sporting a loss of about 11.50%. And somewhat similarly, most people buying AMD stock since last summer haven’t fared very well.
Here too though, there’s growing reasons to see the net price action in this tech stock as a positive for today’s investors. Technically, this past week shares formed a bullish weekly hammer candlestick pattern. Further inspiration comes from the bottom developing over an area of key price support defined by Fibonacci and trendline analysis.
Today and this week, with shares rallying to confirm the candle low and stochastics signaling a bullish transition in oversold territory, this tech stock is ready to go long. For likeminded investors, an AMD stock collar used dynamically for core portfolio positioning is a favored risk-adjusted way to stay the course.
Plug Power (PLUG)
Source: Charts by TradingView
The last of our tech stocks to trade and more specifically, pull the plug on, are shares of Plug Power. One of 2020’s top investments and the de-facto choice of investors wanting a piece of the hydrogen economy has come undone. And the worst of it doesn’t appear to be over.
Today shares of PLUG are getting pummeled by 16% after news of “accounting errors.” Enron, anyone? In all fairness and from what we know right now, the irregularities don’t appear nearly that troubling. Nevertheless, investors are clearly less-than-optimistic. And given a price chart that’s already taken a deep dive in recent weeks, Wednesday’s damage is shaping up as an indication the worse isn’t yet over.
Technically, this alt energy tech stock has now taken out the low of the prior week’s candle. PLUG has also bearishly reversed back below its 50% Fibonacci level tied to its Covid-19 low. Conditions look even more troubling as the price action follows a failure to overcome prior trend support now confirmed as resistance.
The upside? All stocks do correct, and PLUG has already put together a fairly stiff 56% correction this year. However, with many other alt energy darlings from last year also running out of gas this year, a more toxic decline toward much deeper trend support spanning $20 to $24 is now a part of the conversation. And for some investors, that kind of reality could be used as part of a trading plan to profit more smartly from in the weeks ahead.
On the date of publication, Chris Tyler holds, directly or indirectly, stock and derivative positions in Plug Power (PLUG) and ARK Innovation ETF (NYSEARCA:ARKK) and Advanced Micro Devices (AMD), but no other 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.
