EC Is The Technology Sector About To Break Lower?

The current capital shift in the US stock market may be settling into the Technology sector as investors move away from growth and into value. Technology has recently recovered very nicely from the late December 2018 lows and is currently setting up a very eerily similar pattern across multiple charts.

If the analysis is correct, the Technology sector may be set up for a downside price breakdown near the APEX of these Pennant/Flag formations that appear in our charts. Near recent, all-time highs, this downside breakdown could be rather large in size, possibly as much as -20% to -35% or more, and could result in a global stock market decline that could shock most investors/traders.

The economic data that has recently been announced in the US continues to show moderate strength overall. The jobs numbers are decent. The consumer is still moderately active and we are getting into the Christmas Rally season. Yet we are also in the midst of a Presidential Election cycle that continues to heat up and drive almost daily new headlines. Our opinion is that the US consumer will become fixated on the political theater while we get closer to the November 2020 elections and may curb Christmas/holiday spending if news/perspective suddenly darken.

One of the first sectors that could break is the Technology sector – where foreign investors have poured billions into this sector while chasing price gains and to protect against foreign currency devaluation. Once investors determine Technology is no longer “safe”, then a downside price event (true price exploration) will likely happen and we are concerned the downside risks could be much greater than 20~25%.

This AMD weekly chart provides one of the clearest pictures of the tight Pennant/Flag formation setting up in price. After a Double-Top type of formation near $35, any further price advance was rejected near $36.The current tight price rotation after the August 2019 peak suggests a very tight Pennant/Flag formation is setting up. If our analysis is correct, the APEX/breakout/breakdown event is only a few days away. Count of the Pennant rotation suggests the breakdown move (lower) is the most likely outcome.

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Duanne Johnson 1 year ago Member's comment

Good read.

Chris Vermeulen 1 year ago Author's comment

Thank you!