The selling over the past week or so has been concentrated in Technology and growth areas. So, is this the start of the next bear decline or a normal correction?
The large-cap technology stocks, namely many of the FAANG related names, have suffered strong selling over the past week. The relative strength underperformance in COMPQ and NDX against the S&P 500 Index, Dow Jones Industrial Average, and other major stock market indexes show rotations out of Technology and Growth into other competing markets. The discrepancy between Technology and Growth versus the rest of the marketplace has occurred numerous times before. However, each deep correction in the past has resulted in Technology and Growth temporarily losing their leadership roles but returning to structural leadership roles soon after. Is this another one of these occurrences?
The technical actions in the days and weeks ahead may help to decide the status of the Technology sector and the growth and value debate.
Enclosed below are technical commentaries on two proxies for Technology and Growth – Nasdaq Composite Index (COMPQ) and the Nasdaq 100 Index (NDX). The following technical levels will help provide technical guidance to the next directional trends for these respective markets.
Nasdaq Composite Index (COMPQ – 13,597.97)
On a positive note, COMPQ has maintained its key initial support during its recent slide to 13,003.98 (2/23/21). The crucial support corresponds to the 38.2% retracement from Oct 2020-Feb 2021 rally and potential neckline support (12,985-13,046). Violation here warns of a deeper correction to 12,499-12,543 (50% retracement and 1/4/21 low), and below this to 12,103-12,215 (61.8% retracement and 12/10/20 low), and then toward 11,795 (h/s top breakdown target).
On the other hand, a surge above 13,531-13,608 (bottom of Nov 2020 uptrend) and preferably above 13,719-13,843 (left shoulder, middle of Bollinger Band, and 2/22/21 gap down) helps to solidify the 13,004 low. A breakout above 13,976-13,995.5 (a potential right shoulder and the 2/17/21 gap down) can send COMPQ back to 14,175.12 (2/16/21 record high) and 14,271-14,443 (top of the Nov 2020 uptrend channel). Above this clears the way for a sustainable COMP rally toward 15,365 (head/shoulders top breakout target).
Nasdaq 100 Index (NDX – 13,302.19)
NDX may have also found key support at 12,758.12 (2/23/21) by maintaining the 38.2% retracement from Nov 2020 to Feb 2021 rally. However, violation of 12,758-12,763 would warn of a deeper correction to 12,418-12,569 (50% retracement and the 1/6/21 low), and below this to 12,073.5-12,090.93 (61.8% retracement and 11/30/20 low). A breakdown here can trigger the next decline toward 11,793 (h/s top breakdown target) and then toward 10,957 (11/2/20 low) under strong selling.
The recent 2-day rally is approaching crucial initial resistance at 13,405-13,564 (2/22/21 gap down, the bottom of the Nov 2020 uptrend channel, middle of the Bollinger Bands, and the left shoulder of a potential 2-month head/shoulders top. The ability to surge above this resistance zone helps to extend the rally to 13,702-13,973.5 (the right shoulder, 2/17/21 gap down, 2/16/21 all-time high, and the top of Bollinger Band), and above this to 14,040-14,144 (top of the Nov 2020 uptrend channel), and then to 14,950 (h/s top breakout target).