Searching for key levels in tech
Mark Newton, Newton Advisors, looks at the tech charts. With CNBC’s Brian Sullivan and the Fast Money traders, Steve Grasso, Brian Kelly, Karen Finerman and Guy Adami.
Tech could tell us a lot.
That’s what Mark Newton, founder and president of Newton Advisors, said Thursday on “Trading Nation” as the sector fell 3% alongside the broader market. Tech stocks opened more than 3% lower Friday.
Looking at the group on an equal-weighted basis — rather than a market-cap-weighted basis, the more common style of weighting used in sector ETFs like the Technology Select Sector SPDR Fund (XLK) — Newton said it could send the signal ahead of the next market pullback.
“Increasingly, we’re starting to see evidence of tech starting to peak out, at least on a relative basis,” Newton said, referencing a chart of the equal-weight tech sector relative to the S&P 500. Equal-weight tech is tracked in part by the Invesco S&P 500 Equal Weight Technology ETF (RYT).
“This peaked out right back in January of this year. When the market made new highs in February, tech did not participate,” Newton said. “Since then, we’ve actually broken down under this little four-month uptrend, so, the broader trend from 2019 [is] still very much intact. However, it is a worry because tech represents about 22% of the S&P.”
That could bode poorly for stocks, the technical analyst warned in a note to clients Thursday. If the broader tech sector starts to roll over and break below that longer-term relative uptrend, displayed above in orange, it “would signify a good likelihood that stock indices pull back to test recent lows,” Newton wrote.
On Thursday, the pain stretched to shares of Apple, which fell more than 3% after Foxconn — one of the iPhone maker’s key suppliers and the world’s largest contract electronics manufacturer — reported its largest year-over-year revenue decline since 2013.
While Apple’s recent losses haven’t brought the stock below the longer-term uptrend that began after the market’s December 2018 fallout, Newton was watching one particular level in the stock for further warning signs.
“The stock did move to new monthly lows on very heavy volume, the highest volume we’ve seen in months,” he said. “When that happens, momentum really starts to roll over. So, my worry is not about in the next week. It’s more about in the next few months. The stock has already made a decent rebound in the last few days, but my thinking is any failure here that comes back to take out [$]256 would warn of a much larger decline in the price of Apple, which, of course, being part of all these ETFs and indices, is gong to be a worry for technology and the market as a whole.”
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