Tracking tech
03/29/18

A month ago, few people likely predicted Facebook (FB) would soon be suffering the worst week in its history, Amazon (AMZN) would be in correction territory, and along with other high-profile tech stocks they would be leading the market lower as forcefully as they led it higher over the previous year.

It’s been quite the reversal of fortune. The following chart shows the Nasdaq 100 index (NDX), which is heavily concentrated in tech companies, was the only major US index to crank out a new all-time high after the February correction. At yesterday’s low, though, the NDX had fallen more than 10% from its March 13 high, again putting it in correction territory, if only on an intraday basis. The index has closed down 10 of the past 12 days:

Nasdaq 100 (NDX) 9/29/17–3/28/18. NDX daily chart, correction

Source: OptionsHouse

Yesterday, the NDX fell more than 1.7% intraday to its lowest level since February 9—less than 250 points from that day’s low—before stabilizing a bit. As always, anyone’s guess as to whether the bleeding is over. But there are reasons to prepare for a test of the February correction lows—an event that presents potential opportunities for short sellers as well as buyers—especially if the NDX closes below yesterday’s low:

●The NDX has now closed below its March swing low three out of the past four days. The February correction low is the next chart support level.

●All major US indexes are closer to their February correction lows than their record highs. The S&P 500 (SPX), for example, which also traded below its March low last week, is around 3% away from its February 9 correction low (it’s even closer to its February 8 low close), vs. more than 9% away from the January 26 high.

●The first trading day of April (Monday) hasn’t historically been particularly bullish for the NDX: Since 1971 it has closed up only 22 times in 47 years (47%), although only four of the past 10 years have been down (2017 was one of them). For what it’s worth, the last trading day of March (today) has a better track record, closing up 30 times (64%).

If and when the NDX and other indexes test (or close below) their February lows, it will be a good idea to watch their respective volatility indexes—the VIX for the SPX and VXN for the NDX, for example. As noted in “VIX watch,” there is a tendency for SPX lows to occur when the index makes a lower low but the VIX makes a lower high, a pattern that suggests stocks are dropping to more extreme levels while the VIX is registering less “fear,” which can imply a potential up move.

Nasdaq 100 Volatility Index (VXN) 3/28/18

Source: OptionsHouse

The chart above shows that as of yesterday the CBOE Nasdaq 100 Volatility Index (VXN) was still below the highs it made during the February correction (which is appropriate, since the NDX is still above its February low). If it doesn’t exceed those highs if and when the NDX trades below its February low, it may signal the current tech downturn has run its course, at least for a while.

Market Mover Update: RH (RH), formerly Restoration Hardware, shot up more than 20% yesterday after trading in a tight range for most of the month (see “It pays to read beyond the headlines”).

Futures Alert: May copper futures (HGK8) recently returned to a major support zone that dates back to September:

May copper futures (HGK8) 6/27/17 – 3/28/18. Price support level

Source: OptionsHouse

 

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