On this chart of the Nasdaq Technology index, we can see that red line buy signals are frequently followed by sustained periods of rising share prices. The picture with the yellow line sell signals is less clear. Shares may fall, or they may pause for breath. Either way, there is a good case for selling on a yellow down triangle and waiting for the next red upwards triangle to buy.
The problem with acting on the next yellow up triangle is the risk of whiplash, and too many of these can be expensive. Whiplashing occurs when you sell and then buy back at a higher price, or buy and then sell at a lower price.
Selling on a yellow and buying on a red removes much of this risk.
The latest development is a yellow sell signal on the Nasdaq Technology index. Allied to the growing number of yellow and red line sell signals on important shares in the index, the case for caution is growing.
We are in that strange transition point from bull to bear, and the charts I look at are compatible with a sudden inflexion point when aggressive profit-taking is on the brink of turning into a flood of selling.
Like a growing number of shares in the Nasdaq 100 Technology index, Meta Platforms has a red-line sell, which in my system is the definition of a bear market. The optimistic possibility is that the averages are bunching before a major move, which could be higher. Either way, we should wait for a buy signal before taking action.
This chart of the Meta share price encapsulates the uncertainty in the US market. All the moving averages are declining. It seems unthinkable that this share could break down from here, turning all the trading over the last 15 months into a top area, but sometimes the unthinkable happens.
What could that unthinkable thing be? Many things. AI is starting to impact corporate America in unpredictable ways. The world is drifting into a war which seems to be spreading. Supplies of oil and natural gas are at risk of falling sharply. And the future is always a bit of a mystery.
Teams is a software programme which is important to Microsoft and virtually all of Atlassian’s business. One of my sons-in-law tells me that AI can create a software programme that works like Teams in minutes. Now look at the Atlassian share price.
AI poses an existential threat to Atlassian’s business, and the share price is reflecting that with all the moving averages plunging. Microsoft shares also look unhappy.
Half the shares in the Nasdaq Technology index (22 out of 45) have red-line sell signals. Another nine have yellow line sell signals. This is a dangerous stock market. Even when I see shares trending strongly, I am cautious because the overall picture is so negative.
Strategy – Think Long-Term Trade
The safest way to play Microsoft on this chart is to buy and sell on the red triangle signals. Presently, you would be out of the shares.
The Nasdaq 100 has joined the Nasdaq 100 Technology Sector index in giving a yellow line sell signal. The positive side of all this is that a buy signal requires the moving averages to fall first. Good times are coming, but it is impossible to say when.
My two favourite bellwether stocks, Nvidia and Palantir, have both given yellow sell signals but are holding their ground rather than falling. Nvidia has been tracking sideways for nearly nine months, so a big move may be coming.
