The sell-off in the US sector continued until the end of Friday, putting pressure on the broader market and hitting a more than six-week low.
Although the technology sector makes up less than 30% of the market, the index closed lower for the third consecutive week, largely because of the significant and disproportionate impact of technology stocks on the broader benchmark.
On the other hand, stocks – stocks of companies that move up and down according to the business cycle, such as oil producers and small caps – were won this week.
Is this sell-off a healthy correction needed for the market to reach new heights, or is it a more ominous turnaround?
Remember that after the stock collapse in March, stocks rebounded quickly (with some help from the Fed), exploding 60% higher from the end of March to the beginning of September. Technology stocks led gains, with an astonishing 80% in less than six months.
Even more breathtaking, the five major tech companies with mega caps – Apple (NASDAQ :), Microsoft (NASDAQ :), Alphabet (NASDAQ :), Amazon (NASDAQ 🙂 and Facebook (NASDAQ 🙂 added an incredible 91% of value. same period.
However, the enthusiasm of investors about the tech sector now seems to be over.
Last week we said it was. That is no longer the case.
The tech-heavy index has completed a turnaround. As such, we are now making a bearish call.
The index has just completed a pennant bearish after free-falling more than 11% within four sessions from September 2, its all-time high. This is considered to be a follow-up pattern after the early bears were paid out with exceptional profits and new bears came in for trading.
If the price falls through the pennant, it shows that whoever wants to buy back shorts has already done so, which means that short sellers must now seek new buyers at lower prices.
At the same time as the bearish pennant's downward breakout, the price hit a second low. After two falling peaks, we officially have a downward trend.
Maybe we even have a H&S top, with the dotted line as a neckline. Note, a serious H&S takes at least three months, while it only lasts one month. Nonetheless, the volume supports the dynamics of a V&G summit as participation dried up with the rallies and peaked with the sell-off, indicating where the interest lies. Finally, on Friday, the index fell by its highest volume since the December 2018 sell-off. to be. hit, to identify two peaks and troughs within a downtrend, regardless of the price action within the previous uptrend.
Moderate traders would wait for a move back, at least for a better entry, if not confirmation of the trend, with further resistance from the pattern.
Aggressive traders can go short at will, provided they understand and accept the risk of stocks swaying in this unusual market environment and have a carefully crafted trading plan that they will adhere to. Here's an example:
Trade Sample
Entry: 11,100 – on return
Stop-loss: 11,200
Risk: 100 points
Target: 10,400 – July lows
Reward: 700 points
Risk: Reward Ratio: 1: 7
Author's Note: This is an example only, not the lesson. It is not necessarily the only correct way to approach this trade. Everyone acts differently, based on budget, timing and temperament.
