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After the close yesterday we highlighted how Amazon had seen an “outside-down” day….and that this kind of development is frequently a signal of exhaustion of a rally…especially when it comes after a strong/sharp rally. AMZN did fall another 2.6% today…and it also closed below its early April lows, so unless it bounces back strongly and immediately, the stock is going to have a tough time over the near-term. Again, after a 47% rally in just one month, a meaningful decline right now would not be a major problem for its longer-term potential, but there’s it definitely looks like a stock that should be bought on weakness…and not chased at these levels.

Not only did AMZN fall further today, but so did the other four names that have been so important in the rally off the March lows…as FB, MSFT, NFLX and AAPL saw declines of between 1.6% and 4.2%. On top of this, the QQQ’s followed yesterday’s “outside-down” day in AMZN with an “outside-down” day of its own! (The QQQ’s are the ETF on the NDX Nasdaq 100, but we’d also mention that the broader Nasdaq Composite index also saw the same move today.)

At the risk of being repetitive, we just want to mention that an “outside-down” day is one where the high for the day is higher than the previous day’s high…AND the low of the day is below the previous day’s low…AND the close is below the previous day’s low. Again, these tend to be signs of exhaustion in a rally and are frequently followed by declines that last for more than just a few days.

Of course, we’ll have to see if we get any downside follow-through over the rest of this week…and we’d probably have to see a drop below the mid-April closing lows of 204.89 to confirm a change in the short-term trend…but there’s no question that we’re seeing more cracks in the foundation of the large-cap tech rally this week. So if this kind of action continues into the merry month of May, it will raise a yellow warning flag on this area of the market. (First chart below.)

We’d also note that the QQQ is now within a whisker of seeing a “death cross”…as its 50 DMA is less than 1 point from its 200 DMA. “Death crosses” in the QQQ in 2018, 2011, and 2008 were followed by substantial declines…while in 2016 and 2010 the downside follow-through were much smaller. So this kind of “cross” is not as consistent as it is with other indexes and thus it is not a major development. However, with its MACD chart also rolling over, we worry that it could indeed cause some problems this time around. (Second chart below.)

Some people believe that the weakness in these large-cap tech names is not a problem for the broad market…as long we also see a continuation of the rotation into the lagging groups (that we’ve experienced over the past two days). However, all five of these names saw further weakness late in the day (which led them all to close on their lows of the day)…and this almost certainly had an impact on the failure of today’s broad rally. (Although some comments from Dr. Fauci late in the day didn’t help either.) Therefore, relying on a continued “rotation” move in the face of a large-cap tech decline might be a dicey strategy.

Having said all this, the earnings report out of GOOGL has that stock trading 3% higher as we write…and we have several other key Nasdaq companies reporting this week. (We also have the Fed announcement and press conference tomorrow.) Thus there are a lot of items that could have an outsized impact on the Nasdaq over the rest of the week. However, the cracks that are beginning to appear are compelling ones, so investors should keep a very close eye on this part of the market over the coming days.






Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Apr 28, 2020 — 5:04 PM
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