It’s Battle of Technicals as Nasdaq Triggers Hindenburg Omen
(Bloomberg) -- Being a bull or a bear on U.S. tech stocks could come down to whether you are looking at the forest or the trees.
That seems to be the case for Sundial Capital Research Inc. and Evercore ISI -- one notes a bearish technical pattern forming in the Nasdaq Composite Index, the other sees compelling bullish signals for its major components.
For Sundial founder Jason Goepfert, both a Hindenburg Omen and a Titanic Syndrome triggered on the broader tech gauge Wednesday and Thursday. Despite their “silly names” it’s unusual for these measures of negative market breadth to come at the same time on consecutive days and not presage stock market weakness, he wrote in a note Thursday.
Previous occurrences led to a median fall in the Nasdaq of almost 4% over the following month, and a near 14% decline over six months, according to the note.
“It was very rare to see these trigger, and not see weakness in the Composite over the next couple of months,” Goepfert said. “It was also a bad sign for the broader market, with the S&P suffering a poor risk/reward ratio. If these start to trigger for the NYSE as well, then it’ll be even more reason to worry.”
Under the Hood
Yet underneath the Nasdaq’s hood, its key components are looking strong after breaking out to new highs, according to Evercore analyst Rich Ross. Apple Inc., Microsoft Corp. and Alphabet Inc., which together make up about 25% of the Nasdaq Composite, are in an “outstanding position,” he wrote in a note the same day. Ross sees 28% upside for Microsoft, up to 26% for Apple and 22% for Alphabet, from their end-of-Thursday levels.
Read: Hedge Funds in Buy Mode as One S&P 500 Bull Flags 25% Upside
The “debate” comes after the Nasdaq Composite reached a fresh record Tuesday, amid hopes for the potential of a phase-one U.S.-China trade deal and improved sentiment toward the resilience of the U.S. economy. The broader S&P 500 Index closed at a new high Thursday.
“The backdrop for risk-taking remains in a very strong position both tactically and structurally and a modicum of short term consolidation after the scintillating six-week cyclical surge in stocks, yields and value is perfectly normal,” Evercore’s Ross wrote. “Buy weakness.”
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