The recent pullbacks in tech mega-capital stocks have now gone far enough and have lasted long enough to have triggered graphic signals warning investors to, at the very least, not buy these falling stocks.
The chart’s signals are flashing from the widely followed 50-day simple moving average, which many on Wall Street use as a guide to the short to medium term trend. The strongest of the warnings applies to three of the four largest companies by market cap, which helped lead the rally in the broader stock market since March lows: Microsoft Corp.
and the parent company of Google Alphabet Inc.
Slightly less strong alerts, but nonetheless, they also flash for the shares of the largest of the greats, Apple Inc.
as well as the exchange-traded fund Invesco QQQ
which follows the high-tech Nasdaq-100 index
and the S&P 500 index
Read also: Megacap tech selloff as QQQs on track for the biggest monthly drop since the financial crisis
Mark Arbeter, president of technical analysis at Arbeter Investments LLC, said many of the “over-loved and over-rated” megacap leaders are in “precarious” technical positions.
“For some of the indices and individual names, the 50 days have flattened out, and for others it looks like it is changing,” Arbeter said. “This as well as their chart patterns and sentiment suggest that the medium-term outlook has shifted to neutral, if not bearish.”
Shares of Microsoft closed down 1.2% on Friday at $ 200.39, marking the ninth consecutive session to close below its 50-day moving average, or 50-DMA. If that’s not enough to scare buyers, or enough to encourage bears, the 50-DMA began renewing itself on 9/11 and has since accelerated lower.
As of Friday’s close, the 50-DMA was at $ 210,730, or 27.8 cents below Thursday’s closing 50-DMA at $ 211,008, which was 19.9 cents below Wednesday’s $ 211,207, according to data from FactSet. .
The falling 50-DMA even acted as drag on Wednesday, holding back the title rally attempt at the opening. This is a shift from late July to mid-August when a rising 50-DMA acted as support.
As JC O’Hara, chief marketing engineer at MKM Partners said this week in a note to clients, it’s the slope that matters.
“We recognize that moving averages are absolute levels to be monitored in the process,” O’Hara wrote. “In our work, we find it more important to monitor the slope of the moving average, not necessarily the level of the average.”
With that in mind, the 50 DMA slopes for Amazon and Alphabet shares turned negative on Thursday and dropped further on Friday.
Amazon’s 50-DMA was down $ 4,554 on Friday after slipping to $ 1,448 on Thursday, while Alphabet’s 50-DMA was down $ 1,351 on Friday after falling 33.1 cents on Thursday.
Apple’s stock closed below its 50-DMA on Thursday for the first time since April 21, then accelerated to the downside with a 3.2% drop on Friday to a seven-week low.
With the stock down 17.2% so far this month, it was on track for the largest monthly decline since plunging 18.4% in November 2018.
Triple Qs closed below the fund’s 50-DMA on Friday for the second consecutive day and for the third time last week. Even though 50-DMA was still on the rise, it won’t be for long. It was up by just 0.094 points on Friday, after an increase of 0.207 points on Thursday and 0.360 points on Wednesday.
The QQQ has plummeted 9.5% so far in September and is currently heading towards the worst monthly performance since it fell 11.5% in November 2008.
Meanwhile, on Monday and last Thursday, the S&P 500 had dipped intraday below its 50-DMA, but recovered to close it above. The 50-DMA retreated on Friday and the index closed below it for the first time since April 23. See Market Snapshot.
The 50-DMA is still up, but has flattened out, reaching a 3,348 point hike on Friday from gains of 3,742 points on Thursday and 4,803 points on Thursday.
While this doesn’t necessarily mean selling these shares, it should give investors a reason to stop before buying the drop.