If A Catalyst Develops, Here’s Why We Could See A Rally In Tech

  • May 16, 2005
  • Chris Curran


The major indexes finished mixed in what was quite a
volatile week of trading.  Market conditions were pretty lackluster
on Monday, as it seemed as if a quiet week of trading was going to unfold. 
However, that changed mid-week when Industrial Metal, Transportation, and Energy
shares began to lose ground.
Technology shares appeared to
be the beneficiary of that weakness, as the group displayed very impressive
relative strength.  This theme played out over the remainder of the week, which
can be seen by the way the NASDAQ Composite handily outperformed the Dow and SP
500.  It’s also worth noting the that U.S. Dollar closed at its highest level
for the year, which sent Gold and many other commodities plunging.  Behind the
greenback’s strength was a sense in the markets that the Fed could be much more
hawkish than anticipated (i.e. many thought the Fed was done in May). 

The June
SP 500 futures closed out the week with a loss of -14.50 points, while the Dow
futures posted a larger relative loss of -200 points, with both posting market
structure highs and ending their 3-week win streaks.  On a weekly basis, the ES
posted a bearish engulfing line and is trying to break a bear flag after
reversing off of its 10-day MA and downtrend line resistance.  Looking at the daily
chart, the contract chewed its way through its 200-day MA to hit its 1st and 2nd
Gartley targets at 1156 and 1149, but settled right on its broken downtrend line
support.  The YM posted a weekly bearish engulfing line and also settled on its
broken daily downtrend line support after hitting its 2nd Gartley target.  For
you daily 3-Line Break followers, the ES remains long with a Break Price of
1139.75, while the YM is short with a Break Price of 10374.  

 

                           

Last week,
we saw a resumption of the trendless conditions for the major indexes.  Overall,
most stocks have been range-bound for the last 2 months, which has shortened
trading time frames down considerably.  The recent trend of rotation into Tech
shares could be in its early stages.  Keep in mind, many of the Chip stocks,
which are often noted as the leaders of the entire Tech space, were near
two-year lows recently (e.g. AMAT).  As such, even a remote amount of good news
could be enough to spark a substantial rally in the group.  The Techs remain a
favorite of the short-sellers, which means the fuel for further gains is
available if a catalyst develops.  But, as always, I’ll leave that expertise up
to the “predictors,” and watch the daily action as my main guide.

 

 

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris Curran

 

 

 

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