I am not sure I can be any vocal about this but as a group, the technicals of Technology stocks looks downright nasty. In the last two weeks we’ve seen poor reactions to worse than expected fundamental news from the following companies:
JBL: contract manufacturer to AAPL, CSCO and HPQ saw a 9% one day earnings decline, and now is down 15% from its 52 week highs made in May:
ORCL: enterprise software vendor to most major industries whose shares are down 12% in the last two weeks since offering worse than expected forward guidance:
MU: the PC and smartphone memory provider whose shares crashed 18% this past Friday on a weak outlook:
I’d love to tell you that I am being drawn to these stocks as a sort of confirmation bias, but aside from a small few of large cap tech stocks in the Nasdaq 100, most of them are down and have what appear to be dramatically deteriorating technicals.
On Friday I highlighted what appears to be a textbook head and shoulders top formation in shares of INTC (read here):
And here is today’s pick to click. Seagate (STX), the disk drive maker, whose 5 year chart resembles MU’s almost to a tee with the stock having just broken the long term uptrend and not just below important support level:[caption id="attachment_54963" align="aligncenter" width="600"] STX 5 year chart from Bloomberg[/caption]
Given the backdrop of weak fundamentals in the PC and Smartphone supply chain it is hard to frame a bullish argument for these stocks. We could be nearing a point where loading up on the cheapest puts you can find heading into earnings events may be the most profitable play on the board. What most of the charts above have in common is the break of the long term uptrend, on volume, and most hovering around near term technical support in what has been a topping process.
The next identifiable catalyst will be fiscal Q4 earnings in mid July, we think STX sets up as a very strong “sell rallies” candidate. For now, fear of consolidation keeps us away from outright shorts, but as we get closer to earnings (once they are confirmed) we will look to express this view in STX and others with defined risk.