High Probability Trading Report: Strategies for the End of the Tech Rally (SPY, SMH, QQQQ)
Technology-related exchange-traded funds (ETFs) have been rallying along with the broader market since early July. While the ^SPY^ (below) is up more than 6% for the month of July, the ^XLK^ is up well over 7%. Leveraged technology funds, predictably, have performed even more impressively over the past 30 days. The ^ROM^ gained 16% over the course of July, while the ^TYH^ advanced by more than 23%.
All that progress means is that profit-taking would be right around the corner and, over the past few days, sellers have stepped into the market to do just that. As a result, a number of these technology-based funds have begun to retreat, with a few slipping back into oversold territory.
^SMH^
One of the more oversold ETFs in our database is SMH.
The SMH has closed in oversold territory above the 200-day moving average for the past two consecutive trading days. The fund rallied back above the 200-day at the beginning of July and is now pulling back toward that level as profit-taking sets in. Additional weakness in the SMH – above the 200-day – will provide opportunities for high probability traders to scale-in at least partially to this increasingly oversold ETF.
^QQQQ^
Many technology-related ETFs are oversold, but have slipped below their 200-day moving averages. This includes XLK, noted above, but also leveraged ETFs like the ^USD^.
Another option for high probability traders looking for pullbacks above the 200-day moving average is the current pullback in the ^QQQQ^.
The QQQQ has closed lower for three days in a row above the 200-day moving average. Having closed below its 5-day moving average for the past two days, the QQQQ is also sliding closer to its 200-day moving average. As with SMH, too aggressive selling may push the fund below its 200-day moving average. But as long as the QQQQ remains oversold above that level, the ETF will remain an attractive potential candidate for high probability traders.
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7 Technology Stocks You Need to Know
On the stock side of the high probability trading equation, there are a number of stocks that have become oversold above the 200-day moving average. Traders who are looking for opportunities in stocks may want to consider the pullbacks in some of the following Nasdaq 100 names.
^ALTR^ has closed lower for three days in a row, losing more than 2% on Thursday.
^INTC^ lost more than 1% on Thursday and has also closed lower for three days in a row. The stock is only a few points above its 200-day moving average.
One non-tech Nasdaq 100 name high probability traders may be interested in is ^ROST^, down three days in a row leading into Friday’s trading and off more than 1% on Thursday.
Another non-tech pullback can be found in ^SBUX^. The last time SBUX was this oversold was back in late June, shortly before an oversold bounce took the stock from 23 to 26.
Plunging by more than 2% on Thursday were shares of ^SRCL^. The stock had been trading in a range for most of June and all of July. But strong selling has helped drag the stock into oversold territory above the 200-day moving average ahead of Friday’s trading.
^WYNN^ plunged from neutral territory to oversold territory as it gapped down at the open on Friday. WYNN had been in a strong rally since the beginning of July.
Down three days in a row and off sharply in the first few minutes of trading on Friday were shares of ^XLNX^. XLNX is more oversold than it has been in several months.
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David Penn is Editor in Chief at TradingMarkets.com.