Rising inflation concerns have plagued stocks for some time. The market sector that has suffered most recently is high-flying technology stocks, after a glorious 2020.
Investors fear that if inflation increases, the overvaluation of technology stocks will no longer be supported by Federal Reserve accommodation and rates will have to be raised regardless of what the US central bank has said about lower interest rates for longer periods of time. With this concern in mind, investors have repositioned portfolios to increase the weight of value assets at the expense of growth sectors.
This recent phenomenon of investors entering and exiting technology stocks based on their prospects for a reflation trade weighed on the tech-heavy, which is down 3.9% this year. But it is most visible in the recent move of shares of iPhone maker Apple (NASDAQ :), which underperformed and is down 5.1% YTD.
The weakness in tech tells a compelling story:
Apple stocks are struggling to fail to complete a major upward-sloping H&S summit. The rising neckline gave hope that the stock would continue to hit new highs, but the March slippage was the first sign of trouble.
That was followed by a lower peak on April 29, which yielded a second negative result. signal. Eventually, the price fell below the neckline again, after which it found support from the 200 DMA and managed to close a hair above the neckline.
However, the bearish MACD and RSI were both already falling below the upward trend line. , in front of the neckline, suggesting the risk is clearly down. In addition, the breadth of the pattern suggests great interest from traders, so if it completes and reverses, there will be a strong reaction.
If the cartridge continues its natural mechanics, the downward breach will cause a short circuit. As short positions increase and longs are stopped, demand will decline.
Trading Strategies
Conservative traders should wait for a new low, below the Mar. 8 lows at $ 116.21, which would trigger a downward series of highs and lows before risking a short position.
Moderate traders would go short with a close below 200 DMA
Aggressive traders could short at will. , if they accept the added risk of no trend confirmations, what would be the price to be paid for the higher reward of beating the rest of the market. Money management is key.
Here's an example.
Trade Sample:
Admission: $ 125
Stop Loss: $ 130
Risk: $ 5
Target: $ 110
Reward: $ 15
Risk: Reward Ratio: 1: 3
Author's Note: This is an example. You need to tailor a trading plan to your timing, budget and temperament. Use our examples until you learn how to do this, but just for learning, not for profit, or you won't get either. We guarantee it.
