Is the tech sell-off almost over?

Last Wednesday’s stock market decline was the largest since October 14, 2022, when the S&P fell 2.37% and the Nasdaq Composite fell 3.08%. The decline was in response to a stronger than expected CPI report for September 2022. Last week’s decline was very similar, with the S&P falling 2.3% and the Nasdaq Composite dropping even further to a 3.6% drop.

The rally in the value sector, which began with the June CPI report on July 11, continued, buoyed by Friday’s PCE report, which reinforced the view that inflation is still declining. The Dow Jones Industrial Average rose more than 1.6%, or 654 points, with the Dow Transportation and Dow Utilities stocks also posting similar gains.

The small-cap iShares Russell 2000 led the way this week, rising 3.4%, and is up double digits for the year to date at 12.3%. The Dow Jones Utilities Average rose 2.2%, while the Dow Jones Industrial Average and the Transportation Average both added just under 1%.

The Nasdaq 100 Index rose 1% on Friday but was down 2.6% for the week. The S&P 500 also lost 0.8%. The unweighted Nasdaq 100 rose 2.1% and the unweighted S&P 500 rose 2.8%.

On the New York Stock Exchange, 1776 stocks rose and 1096 fell this week. Many analysts have focused on the fact that weighted averages such as Invesco QQQ Trust (QQQ) have hit dramatic new highs while unweighted rising/falling lines have not. Over the last month, I have investigated this phenomenon and found that these are not true divergences. This has reduced fears of a major stock market correction.

The NYSE Composite Index closed just above the resistance line (line a) that is likely to complete the trading range formed in 2024. This predicts a further upside of over 5%.

The weekly NYSE All Up/Down line hit a new high three weeks ago, predicting a new high for the NYSE Composite Index, and has since risen further, reaching well above its breakout level. Last week, the NYSE Stocks Only A/D line also hit a new high, confirming the positive movement of the NYSE All A/D line.

SPY (Spider Trust) fell below the monthly pivot at $538.48 on Thursday, hitting a low of $537.54, before closing higher. It rose 1.1% on Friday but is still 1% below the descending 20-day exponential moving average (EMA) at $549.41. A test of the monthly pivot and support (line a) is typical of a normal correction. This sets the stage for further indications of a new uptrend. A move above last Tuesday’s high of $556.74 should complete the correction pattern.

The S&P 500 Advance/Down Line crossed above resistance (line b) on July 12th, which was a very positive technical development. The A/D Line peaked the day after the S&P 500 hit a new high on July 16th. The A/D Line retested the breakout level on Wednesday, then finished the week strong, closing very close to the new high. The A/D Line is again driving the S&P higher.

We looked at major tech stocks and ETFs at the end of June. The table has been updated with closing prices on July 26th, and shows the changes since the end of June. NVDA was the biggest gainer at the end of June, falling 8.5%, while META fell 7.6%. XLC, XLK, and QQQ, which are tech-focused ETFs, fell 2.3% to 4.4%.

The SPY is unchanged over this period while the S&P 500 equal weighted index is up 3.3%, indicating that while tech stocks have been weighing on the tech-heavy SPY recently, the rest of the S&P 500 has been performing well.

At the end of June, I noted that META had been “sending warnings over the past few months as it traded above its monthly starc+ band in February, March, and April.” In early July, META broke above resistance (line a) and hit a high of $542.81 before turning downwards. Over the next eight days, META fell 15.4% to a low of $459.12. Last week, it hit a further low of $442.65.

At META’s July high, the relative performance (RS), which measures META’s ratio to the S&P 500, was lower than the high and formed a bearish divergence (line b), a sign that META was weakening rather than strengthening relative to the S&P.

META’s on-balance volume (OBV) also failed to overcome resistance (line c) and fell further below the February high, therefore volume action did not support META’s new high of $542.81.

So what’s next for big tech stocks as MSFT, AAPL, META and AMZN report earnings next week?

Invesco QQQ Trust (QQQ) holds MSFT 8.6% and AAPL 8.4%, with AMZN and META nearly 5%. QQQ was in low-risk buy/high-risk sell territory after closing below the star band last Wednesday and Thursday. The low of $455.63 tested the May high (line b) but failed to reach the first monthly support level (S1) of $453.13. QQQ rose 1% on Friday but closed 3.3% below the 20-day EMA at $478.46.

The Nasdaq 100 up/down also broke resistance (line c) in early July. The breakout level was retested last week as the A/D line closed above the EMA. Friday’s 1% rally was unspectacular, but the fact that 68% of the QQQ stocks rose was a sign of internal strength. The daily RS broke its uptrend (line e) on July 16. As such, it is no longer leading the S&P 500 as it has done since the April-May lows. In the short term, it may not rise as much as SPY.

Looking at the Nasdaq (NQ) largest stocks on T&J’s Thematic Watchlist this week, we see that of the eight stocks, only TSLA is positive based on a three-day Dynamic Trailing Stop (DTS) signal. In contrast, all eight stocks were positive on June 28th. The prominent red in the chart reflects oversold conditions with no positive daily or four-hour DTS signals. These numbers will be the focus of attention over the coming week, but overall there is compelling evidence that the worst of the sell-off is over.

Ahead of Friday’s employment report, concerned analysts will be watching to see if the Fed has delayed cutting interest rates too long. The current technical outlook does not indicate a new wave of selling following this week’s tech earnings reports. Wait for positive technical signals and exercise risk management before jumping back into these tech stocks.