Technology stocks have delivered the bulk of the gains that investors have chased. Friday morning we laid out a potentially bearish case for the U.S. stock market noting that the lion's share of the performance is coming from a narrow list of names.
If these names break their uptrends or the 20-day moving average line closes below the 50-day moving average line we would have a good technical reason to consider trimming long positions.
In this daily bar chart of Activision Blizzard (ATVI) , above, we can see prices are above the rising 20-day and the rising 50-day moving averages. The 20-day might be too far above the 50-day line but it has not yet begun to narrow. The pace of volume looks to be heavier in May than April but overall I would not say that volume has expanded from the December low.
The daily On-Balance-Volume (OBV) line is still in a strong upward trend from November but the 12-day momentum study has weakened in May and June so far. A close below $56 would start to weaken the picture.
In this daily bar chart of Lam Research (LRCX) , above, we can see that prices are above the rising 20-day moving average line and above the rising 50-day moving average line. Volume looks like it is slowing from mid-April levels but the OBV line continues to rise.
The bottom panel shows a bearish divergence as momentum has slowed from May to June even though prices have moved to new highs. A close below $145 would start to weaken this chart.
In this daily chart of Electronic Arts (EA) , above, we can see a large upside price gap with heavy volume, with a retest of the top of the gap. EA is above the rising 20-day moving average line as well as the rising 50-day moving average line. Volume has slowed from the day of the price gap but the daily OBV line continues to rise, suggesting that buyers remain very aggressive.
Momentum is showing a small double top in May while prices make higher highs. This difference in movement is a bearish divergence but it hasn't negatively impacted prices. A close below $95 would be a bearish signal.
In this daily bar chart of Skyworks Solutions (SWKS) , above, we can see that prices have tested the rising 20-day moving average line and the rising 50-day moving average line. Dips below the 20-day have been short-lived and there have been no breaks of the 50-day average line. The volume of trading shows no clear trend but the OBV line is clearly rising.
Price momentum is interesting in that there was a very strong move in January with the price gap but since then momentum has been flat versus the new price highs. This divergence has gone on for more than three months but it doesn't seem to impact prices. A close below $100 is likely to trap some longs.
Applied Materials (AMAT) in this daily bar chart, above, shows a prolonged rise. Prices are above the rising 20-day and the rising 50-day moving averages. The daily On-Balance-Volume line has risen with the price action but we still have a bearish divergence since early May as momentum has weakened as prices have made new highs.
A decline below $42 should worry the bulls.
