Technology -Our next short target?

I said that as soon as we start moving out of the congestion zone we have been in, that we would move from market directional trades to sector specific and stock picking trades, financials was one of the first groups I started posting specific stock trades in, but increasingly technology is capturing my attention as you may have noticed from my recent reviews of AAPL (the last one last night). 


Tech is highly dependent on low rates which we have and the other side of the equation, borrowing so as liquidity locks up in the US as I think it will (the lag effect) R&D in tech companies will be significantly reduced. AAPL being a huge cash cow is an exception, however if Black Friday told us anything, it's that consumers are turning toward low cost good and a new Macbook Pro may very well be put on hold when one can pick up an Acer for $450.00. More then anything though, the greatest gravitational force on any stock is the market first, which traders always have backwards, they look for stocks and then worry about the market when you should be looking at the market and deciding what stocks fit best with your analysis. The second most influential pull on an equity's price is the Industry group they belong to.

One of the reasons I have been looking at AAPL is very simple, Index ETFs need to be balanced to reflect the performance of the underlying stock market average that they track. So if the broad market is moving lower and the averages (S&P-500/Dow-30/NASDAQ 100) tend to move roughly in unison, then it would make sense that to balance the QQQ ETF to match the performance of the NASDAQ 100, one of the first stocks that will be used because of its size, liquidity and weight in the NASDAQ 100 will be AAPL. It may not be fair to AAPL shareholders, but the managers of ETFs like the QQQ often use these big basket names and that is one reason that they don't track well on certain money flow indicators like On Balance Volume, because many of the trades are used simply to balance the Index ETFs.

I haven't dug deep in to the specific sub-sectors yet, I'm thinking bio tech with little in the way of earnings and high dependency on banks for R&D may be a good place to start looking, but for now, lets just take a look at the overall tech average via XLK.

We will start from the micro to the macro

 Here's the recent bounce we had been expecting, look at the 1 min 3C cumulative positioning on XLK, it looks a lot like the bounce was used to sell short in to.

 Here's a closer look at the 1 min for today, the gap was filled, but that's about it, since then it's gone in to a leading negative divergence which is the worst kind.

 The 2 min chart called a negative divergence on yesterday's head fake move out of the triangle in the market averages, today, once the gap was filled, 3C went down hill very quickly.

 The 5 min chart has been lagging in a leading negative position throughout the bounce ( the longer the timeframe, the more significant the divergence).

 Here's the zoomed out 5 min which saw a relative negative divergence at the red arrow and a leading negative at the red box. Again, this signals distribution which is selling, whether it's outright liquidation of longs or short selling, we can't tell the difference, other then connecting some dots, for example, was there a strong accumulation period before the rally?

 The 15 min chart did accumulate share at the lows in the white box, but not that many, so as prices went up, they were sold in to strength, but since there wasn't a huge inventory and 3C looks progressively worse, we can deduce that later selling in the trend was short selling.

 The 30 min shows much the same and is leading negative on a relatively long timeframe, even though it sounds like a short intraday timeframe, it can effect trends that are longer in duration then a swing trend.

The hourly should give you some idea of how potent a negative divergence can be on this chart, just look to the far left in July, those negative divergences led to a deep sell-off and now XLK is leading negative and hitting new lows that haven't been seen probably all year.

So, expect to here about tech names to put on your list in the coming days.