Chart of the week: A great call on US tech shares

Alphabet follows my roadmap

My COTW of 19 March warned of a likely imminent collapse in these shares as they traded around the $1,160 area. There are very few market commentators who are gutsy enough to publicly come out with such specific bold forecasts in real time. The reason is obvious – if you get in wrong, you lose credibility and are left with egg on your face. There may be a little upside but plenty of downside!

Of course, that does not apply to salaried analysts who seem to go from bad call to bad call unscathed.

Chart of the week: Time to bet against Google? 

Most independent pundits hedge around and will only make firm forecasts after the event. By then, all is now clear, but how can you get a drink if you are too late to the party?

As we all know, timing may not be everything, but it certainly is essential if you are going to profit from your analysis. Getting into a trend too early is just as bad as if you had wrongly guessed the direction. For traders, you must get into a new trend as quickly as possible – and be correct.

Of course, the vast majority cannot do this with any consistency. The ideal is to get into a trade which then moves immediately in your direction with no risk to your stop loss. That is what I try to do in my work.

So here was the picture for Google-owner Alphabet (GOOGL) last time:

Source: interactive investor         Past performance is not a guide to future performance

I noted that the rise off the 2009 Credit Crunch lows was almost exponential, and these moves always end with a blow-off and then a rapid descent. That is why I was looking for that blow-off – and believed I had found it when my final wave 5 had topped just above $1,200 on 1 February as the market hit my upper blue tramline on the button.

The subsequent mini-collapse to the $1,000 area was a direct hit on my lower tramline and, by mid-March, it had rallied back as the Dip Buyers exercised their well-honed Pavlovian instincts perfected in the previous years of the bull run.

But, as I noted last time, the bounce had carried to the Fibonacci 76% retracement of the decline, which is always my ‘moment of truth’ level. If the rally was genuine, the shares would continue upwards, but if this was the final resistance level, they would head south.

For a trader, this is an ideal set-up for a contrary trade (contrary to consensus opinion, which is bullish). A short trade there could be protected by a close stop just above that level. As I wrote last time: “Getting this right should result in massive profits.”

So, let’s see how that panned out:

Source: interactive investor       Past performance is not a guide to future performance

A few days spent testing the resistance at the $1,160-$1,180 area, and then the market fell out of bed with a vengeance right back to test the lower tramline in the $1,000 level. This is an area where some profits can be taken.

The most bearish case I can make here is for the market to drop sharply, well below the ‘psychological’ round number $1,000 as wave 3 does its destructive work. A less bearish option is for the shares to stage a bounce from here.

If the tramline support remains in operation, we could see further work between the tramlines before the downtrend resumes.

As I pointed out last time, sentiment towards the previously untouchable US Tech Titans is turning much more negative and this will weigh heavily on the shares this year.

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