In light of the positive earnings reports on Wednesday from FAANG darlings Apple (AAPL) and Facebook (FB), futures markets look poised for a green day on Thursday. While that might be exciting for pandemic-proof market bulls, a further rally in US equities might not be a bad opportunity to lock in some gains. The things that I like to look at from a technical analyst vantage are telling me a broad market pullback is probably coming in the pretty near future.
The S&P looks poised for a 5% pullback shortly. We still have to see what Thursday’s session close looks like, but the bearish divergence of a new price high coupled with a lower RSI high is currently present. I would view an S&P drop of 300 points or so as healthy market behavior. It could do that and still hold this never ending bull market trend very easily.
The Nasdaq doesn’t look totally different despite not really making new highs since January. I still see bearish divergences on the RSI. In addition to that, the 25 and 100 day moving averages are tightening up. I read that as potential exhaustion in the rally. I think a 4 to 5% pullback in the Nasdaq is a pretty safe bet. Though, frankly, it could go much lower and still satisfy normal market retracement.
It probably wouldn’t be prudent to indiscriminately start hammering the ask on your portfolio. I like to be more selective when I think markets have found a short term top. While there are a handful of stocks that I’ve sold this week, the one that I have the strongest conviction in as a seller is probably Roku (ROKU). I actually really like Roku both as a product and an investment long term. I just don’t like what I’m seeing in the price action.
You can see the 50 day moving average already crossed below the 100 day just a couple sessions ago. The 50 day MA continues to be a stubborn line as the ticker has only closed above it 3 times since March 1st. The 50 day is clearly heading lower and I believe Roku is likely going to shave off another 10% if not more in the fairly immediate future. This one has been a rock star for the last year or so but I think it has run out of steam for the time being.
Consider this the jump on the “sell in May and go away” articles you are sure to be inundated with in the next week or so. If you’re not seeing them already, that is.
Standard Disclaimer: I am not an investment advisor or financial professional. Please don’t take anything I say or write as an inducement for you to follow my path. I just share what I’m doing and seeing for anyone who wants to look at it.