The US stock markets spent the first half of the session in the positive territory, stabilising after Friday’s sell-off. But with sentiment shaken, there is a risk we could witness a similar pattern and see the gains evaporate later on in the session.

S&P 500 analysis – will more tech stocks break lower?

Along with slowing sales growth, you also have rising bond yields making growth stocks less appealing, as ‘risk-free’ rates are offering a decent return right now. On top of all this, don’t forget the impact of profit-taking among reasons why stocks have struggled. After a strong performance so far in the year, many investors would be looking for excuses to bank some profit. While the slump in Apple and Tesla shares have weighed heavily on the Nasdaq, the S&P 500 was showing a similar picture, printing some bearish-looking price action last week. So, the calmness we have witnessed so far in the day may not last long.

Earlier, my colleague Matt Weller wrote about the underperformance of the US tech sector of late, owing to the slowdown in sales growth.

Shares in Apple closed 7% lower last week, with Tesla also struggling. Both stocks have started the new week on the backfoot, although the major indices have advanced.

Here’s how AAPL chart looked like earlier:

(Click on image to enlarge)

And here’s what the chart of TSLA looked like:

(Click on image to enlarge)

S&P 500 analysis: Technical analysis

On Friday, the S&P gave up its earlier gains to turn lower, closing below the 21-day moving average and prior support around 4505 area.

Today, the stock market bulls must be relieved that despite Friday’s sharp reversal, there has been no downside follow through. However, like we saw on Friday, things could unravel quickly. There are still a few hours to go until the closing bell.

If by the close of play the markets are still holding onto their gains, then this would be a bullish technical development heading into Tuesday’s session.

However, another bearish close is what we are wary of. If that were to happen, then look out below. As more investors rush for the exits, this will exacerbate the selling.

With a bullish trend line already broken, the short-term path of least resistance is to the downside. But we will stop short of calling this the top. The strong bullish trend has to weaken first before most traders would even entertain the idea of shorting the markets.

(Click on image to enlarge)

Source for all charts used in this article: TradingView.com

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