If you follow us on Twitter or StockTwits, you may have come across our weekly feature, #TrendlineWednesday, in which we – you guessed it – post charts of markets or securities that are testing key trendlines (though, we will admit to often being unable to post them until Thursday or Friday). Some weeks it is a real strain to find relevant and noteworthy trendlines in play across the financial markets. But some weeks, they are just about everywhere you look. The current week falls into that latter category. And two of the most compelling trendlines can be found on the charts of 2 of this bull market’s trendiest (pun intended) recent stocks – Facebook (FB) and Nvidea (NVDA).
Facebook has essentially gone straight up since soon after it IPO’d in 2012. Presently, it is testing (and threatening to break) an Up trendline (on a log scale) stemming from its launch low in June 2013 and connecting the lows near the end of 2016 and September of this year. The trendline currently sits near 175 while the stock closed yesterday around 173.
Nvidea, meanwhile, has been the poster child of the monster run by semiconductors over the past 2 years. NVDA is also presently testing (and threatening to break) a key Up trendline of its own, also on a log scale. This one stems from its February 2016 low and connects the lows in April and May of this year. This trendline currently lies around the 199 level, with the stock having closed yesterday at 188.
So will these trendlines break? Have they already broken? It would appear that the lines have come under enough stress that they will eventually give way, even if the stocks make miraculous recoveries in the next few days. It is important to note, however, that such breaks would not necessarily imply that the rallies in FB and NVDA are over. It would simply mean a likely shallower ascent, or a limit on the pace of advance.
A good example is Facebook itself from a year ago. In November 2016, FB broke a similar Up trendline. It did not halt the stock from advancing further. But it did put a limit on the pace of advance. And, in the short-term, it opened up further immediate downside in the stock. The same is likely to happen in the present cases of FB and NVDA.
How much immediate downside would be opened upon breaking these trendlines? In a Premium Post at The Lyons Share, lay out what to watch for in signaling a trendline breakdown in FB and NVDA – and the key support levels to watch below. In the case of these 2 stocks, the levels are pretty straightforward and clear based on the analysis we are using.
The iShares Dow Jones US Technology ETF (IYW) was unchanged in premarket trading Thursday. Year-to-date, IYW has gained 34.06%, versus a 18.85% rise in the benchmark S&P 500 index during the same period.
If you’re interested in the “all-access” version of our charts and research, please check out The Lyons Share. Find out what we’re investing in, when we’re getting in – and when we’re getting out. Considering that we may well be entering an investment environment tailor made for our active, risk-managed approach, there has never been a better time to reap the benefits of this service. Thanks for reading!
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
This article is brought to you courtesy of Dana Lyons, JLFMI and My401kPro.