By Tomi Kilgore, MarketWatch
The recent pullbacks in megacapitalization technology stocks have now gone far enough and lasted long enough that they have triggered chart signals warning investors that at the very least, don’t buy these stocks on the dip.
The chart signals are being flashed by the widely followed 50-day simple moving average, which many on Wall Street use as a guide to the short- to intermediate-term trend. The most forceful of the warnings apply to three of the four biggest companies by market capitalization, which have helped drive the rally in the broader stock market since the March lows: Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +0.04% , Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -0.27% and Google’s parent Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL +1.30% /zigman2/quotes/205453964/composite GOOG +1.38% .
Slightly less forceful warnings, but warnings nonetheless, are also flashing for shares of the biggest of the big, Apple Inc. /zigman2/quotes/202934861/composite AAPL -0.96% , as well as the Invesco QQQ exchange-traded fund /zigman2/quotes/208575548/composite QQQ -0.0035% , which tracks the technology-heavy Nasdaq-100 index /zigman2/quotes/210598364/realtime NDX -0.02% , and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.52% .
Mark Arbeter, president of technical analysis at Arbeter Investments LLC, said many of the “overloved and overowned” megacap leaders are in “precarious” technical positions.
“For some of the indices and individual names, the 50-day has flattened out, and for others it looks to be rolling over,” Arbeter said. “This as well as their chart patterns and sentiment suggest the intermediate-term outlook has switched to neutral, if not bearish.”
Microsoft’s stock closed lower Friday by 1.2% at $200.39, marking the ninth straight session it which it has closed below its 50-day moving average, or 50-DMA. If that’s not enough to scare away buyers, or enough to embolden bears, the 50-DMA started rolling over on Sept. 11, and has accelerate lower since then.
At Friday’s close, the 50-DMA was at $210.730, or 27.8 cents below Thursday’s closing 50-DMA at $211.008, which was 19.9 cents below Wednesday’s $211.207, according to FactSet data.
On Wednesday, falling 50-DMA even acted as resistance, capping the stock’s attempted rally at the open. That’s a change from late July to mid-August, when a rising 50-DMA acted as support.
As JC O’Hara, chief market technician at MKM Partners, said in a note to clients this week, it’s the slope that matters.
“We acknowledge moving averages are absolute levels to monitor during one’s process,” O’Hara wrote. “In our work, we find it is more important to monitor the slope of the moving average, not necessarily the level of the average.”
With that in mind, the slopes of the 50-DMAs for shares of both Amazon and Alphabet turned negative on Thursday, and fell further on Friday.
Amazon’s 50-DMA declined by $4.554 on Friday after slipping $1.448 on Thursday, while Alphabet’s 50-DMA eased by $1.351 on Friday after inching 33.1 cents lower on Thursday.