Tech talk: Plan your trade, trade your plan

05/16/19
  • Market-leading tech stocks were some of the biggest losers in the recent pullback
  • Previous support zones and popular retracement levels highlight possible reversal points

You know what got hit really hard the past couple of weeks? Tech. What flies high often falls hard, especially if it has a lot of exposure to China.

You know what was up big before that? The tech-centric Nasdaq 100 (NDX)–up 24% YTD on May 3, more than five percentage points more than its nearest US index competitor at the time, the small-cap Russell 2000 (RUT).

You know what was up yesterday morning when the broad market was still in the red? Correct again.

As the trade-war headlines (and, ahem, tweets) continue to jerk the market up and down, traders are determining whether the recent pullback has already run its course or if there’s more downside in store. Yesterday’s intraday reversal may have made it feel like the bulls had won the tug-of-war, but the reality is, no one can be sure.

The point: Chances are, some traders are still sitting on the sidelines, waiting for an additional shoe (or two) to drop before taking stabs at long trades. And in the search for trades with potential “oomph,” many of them are likely eying the tech sector to return its market-leading form.

With that in mind, let’s look at three representative tech stocks, and the levels traders may be looking at as potential entry points in the event Monday’s lows aren’t the end of the pullback story. In each case, popular Fibonacci retracement levels of each stock’s recent rally (from December’s lows) and conspicuous support levels will be noted, especially when they align.

Cisco (CSCO), 9/6/18–5/15/19. Cisco (CSCO) price chart. Hot tech stocks. Bounced off retracement level.

Source: Power E*TRADE


Cisco (CSCO)

Max YTD gain: 32.8%.

Max pullback from YTD high: -11.2%.

What traders may be looking at: The chart above shows CSCO rallied for two straight days after pulling back to its 38.2% retracement level on Monday—exactly what many retracement-watching traders would have been looking for. If this level doesn’t hold, though, the 50% retracement level (a little below $49) is in the vicinity of the support implied by the October–December highs, which may make this zone an even bigger target for in the eyes of many traders.

Microsoft (MSFT), 7/30/18–5/15/19. Microsoft (MSFT) price chart. Hot tech stocks. Mild pullback.

Source: Power E*TRADE


Microsoft (MSFT)

Max YTD gain: 29.3%.

Max pullback from YTD high: -6.3%

What traders may be looking at: Like CSCO, MSFT also spent the past two days in the plus column, but it pulled back much less from its YTD high. As of yesterday it was still nowhere near its 38.2% retracement level, and its March high around $121 may be a minor pullback target if the stock takes another mild downturn. Below that, both the 38.2% and 50% retracement levels correspond to potential support provided by the October high and the November–December highs, respectively.

Shopify (SHOP), 6/19/18–5/15/19. Shopify (SHOP) price chart. Hot tech stocks. Monster rally.

Source: Power E*TRADE


Shopify (SHOP)

Max YTD gain: 92.7%

Max pullback from YTD high: -9.2%

What traders may be looking at: They don’t fly much higher than SHOP has recently—the stock was up almost 93% on the year before pulling back around 9% as of Tuesday. But yesterday’s 3%-plus rally pushed SHOP back above $261, and within shouting distance of its all-time high above $266. Pullback, what pullback?

Nonetheless, if the stock turns lower amid a broader tech downturn, traders may be looking for support at the April high, followed by the March high (which lines up with the 38.2% retracement level). And although recent SHOP buyers probably don’t want to think about it, the 50% retracement level (a little below $192) is around the level of both the March swing high and the April swing low, while the (gulp) 61.8% retracement level lines up with the June–August highs.

The second half of the old trading-advice bumper sticker “Plan your trade, and trade your plan” can be a bigger challenge than many traders think, but everything depends on the plan. If you’re not sure the market’s done pulling back, there’s no reason to put off laying the groundwork for the trade opportunities that may arise.

Market Mover Update: Alphabet (GOOGL) had its first huge up day since tumbling after its earning release on April 30. GOOGL shares jumped more than 4% yesterday, a day after the stock had fallen to its lowest price ($1,123.53) since February.

Today’s numbers (all times ET): Housing Starts (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Baozun (BZUN), Wal-Mart (WMT), Wix.com (WIX), Applied Materials (AMAT), Baidu.com (BIDU), iQIYI (IQ), Kraft Heinz (KHC), NVIDIA (NVDA), Pinterest (PINS).

 

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