The founder of the technical analysis research firm Fairlead Strategies says Meta (META) and Nvidia (NVDA) now look weak after breaking crucial levels.
In a new Schwab Network interview, Katie Stockton says the recent S&P 500 surge looks more like a relief rally rather than the start of a new uptrend.
According to the veteran analyst, the firm’s indicators suggest the market is likely due for a fresh leg down.
“Well, certainly a nice oversold bounce is underway, and that’s welcome because of the declines that preceded it. Just a couple of days ago at the low, the S&P 500 was down nearly 10% from its all-time high. So, of course, we do welcome some respite from that decline, but we’re not entirely convinced that the correction has run its course.
And we say that because not only is momentum still pointing to the downside on an intermediate-term basis, but we just don’t have the kind of extremes that we like to see in the market internal measures. These are things like breadth or market participation and sentiment. We just don’t have those extremes to suggest that the market’s done going down. There’s almost not enough bearishness out there, too much complacency still.”
Looking at the tech sector, Stockton says Meta has breached a critical support area, indicating that the stock is now likely to begin a downtrend.
“And we have seen really meaningful breakdowns on the charts by, of course, Microsoft. That happened last year. But now, more recently, Meta would be the one that has joined the party on the downside, taking out some very key support on the charts and completing what looks like a head-and-shoulders pattern. It’s a long-term topping pattern.”
Traders keep a close watch on stocks flashing a head-and-shoulders pattern, as it suggests that buying momentum is exhausted and bulls can no longer push the price higher. The pattern tends to signal the start of a downtrend.
As of Wednesday’s close, META is trading at $579.
As for Nvidia, Stockton says NVDA just fell below a long-term bullish indicator.
“We also saw Nvidia take out its 200-day moving average. These are all setbacks that to us again enhance the possibility that this is more of a prolonged corrective phase. Maybe it’s just a trading range that ensues from here, but even still, not the very strong bull trends that we were accustomed to prior to this from that mega-cap complex.”
NVDA is valued at $175 while its 200-day moving average hovers at $179.
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