The NASDAQ has churned mightily in an uptrend that is slowly but surely grinding upward from the June lows. Support at the 200DMA held in June and now the technology-laden index is working on holding support at the 50DMA.
Embedded in this churning action are lots of chills and thrills. Two big cap tech stocks that have grabbed closer attention from me during this volatile period are are Intel (INTC) and Cisco (CSCO).
INTC was trading below its 200DMA before reporting earnings on July 17th and looked set to follow-through on the downside. INTC delivered a very lukewarm report and lowered its expectations for revenue growth this year: “As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment.” The stock opened slightly down the next day only to soar in an abrupt move higher, presumably on the heels of remarks from Federal Reserve Chairman Ben Bernanke that morning. He once again promised to respond if the economy weakens further, and the market decided to treat this as new news.
INTC made an impressive move that looked bullish at the time. It cracked right through its 200DMA and for a brief time traded above its 50DMA. However, it closed below resistance at the 50DMA and has now sold off two days in a row. The stock is once again below the 200DMA. With looming resistance pressing lower, INTC seems primed to confirm its downtrend from the May highs with a lower low.
Cisco (CSCO) has yet to report earnings for this quarter, but it has yet to recover from May’s disastrous earnings report. Not only has it failed to reverse any of those losses for longer than a few days, the stock remains capped by a rapidly declining 50DMA. CSCO also benefited from the stock market’s hair trigger response to Bernanke’s sweet elixir, but it has almost returned all those gains. It does not seem likely that the stock will hold its 2012 lows for much longer without a major positive catalyst. A break of support sets CSCO up to return the rest of its rally from last October’s major bounce.
Source: FreeStockCharts.com
The bearish action in INTC and CSCO contradict the slow and steady (bullish) progress the NASDAQ is making from the June lows. It is hard for me to imagine this divergence continuing for much longer. For now, I am betting on further bearish action out of the individual stocks (CSCO is part of a pairs trade with Juniper (JNPR)). Based on my favorite technical indicator, the percentage of stocks trading above their 40DMAs (T2108), I am also expecting further weakness in the NASDAQ back to 50DMA and/or 200DMA support.
Be careful out there!
Full disclosure: short INTC, long CSCO puts, long JNPR calls