U.S. Technology Stocks Might Sink 10%: Technical AnalysisAdria Cimino and Srinivasan Sivabalan
U.S. technology stocks may drop at least 10 percent after meeting resistance levels formed by the retracement of losses after the dot-com crash a decade ago, technical analysts at ING Groep NV and Mig Bank said.
The Nasdaq Composite Index will probably decline toward its 200-day moving average of about 2,704, according to Ron William, a technical analyst at Mig Bank in Neuchatel, Switzerland. The gauge rose 0.3 percent to 3,100.34 at 10:57 a.m. in New York today, extending the gauge’s rally this year to 19 percent.
“The Nasdaq’s acceleration, although positive, is unsustainable in the short term,” William said in a telephone interview. “The index is testing a key historical price level at the halfway mark of what it lost since the crash.”
The Nasdaq, which sank 78 percent from its high point in March 2000 to its lowest level in October 2002, has recouped half of that loss, according to data compiled by Bloomberg. William said the next resistance level for the index, or ceiling limiting further gains, is 3,120 and the support level is 2,900.
The Standard & Poor’s 500 Information Technology Index, which posted its best quarterly gain since 2002 in the first quarter as Apple Inc. shares rallied, has reached a resistance in an upward price channel and may fall to 435-430, said Roelof-Jan Van den Akker, senior technical strategist at ING in Amsterdam. The measure was unchanged at 496.59 today.
The S&P 500 technology gauge surged 21 percent in the first quarter, crossing the 38.2 percent Fibonacci retracement level of the 83 percent drop between March 27, 2000 and Oct. 9, 2002, data compiled by Bloomberg show.
“The coming decline will be a buying opportunity,” Van den Akker said in a telephone interview. “The underlying trend continues to be bullish.”
Apple’s 51 percent rally since the start of the year, which has pushed its share price above $600, suggests that the Nasdaq Composite will fall, according to William.
“It was almost a straight-line move to the $600 mark,” he said before the company’s shares started trading today. “Apple is likely to see a healthy pullback to the long-time 200-day moving average, currently at $419.”
William said that the market has been in a counter-trend rally, meaning the move has gone against the overall bearish direction of the market. As part of an Elliott Wave pattern, the market will soon enter a third phase as shares fall, the technical analyst said.
William added that volatility is historically higher in the spring and summer months, and this will result in the selloff of riskier assets such as equities. The market cannot sustain its current level of optimism, he said.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.
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