As tech rally stretches continues, market analyst identifies one key level for comeback confirmation
Tech stocks are roaring back this week, attempting to reverse a steep decline since mid-October.
The sector and the tech-heavy Nasdaq 100 had been beaten down by a rotation into value as a surge in coronavirus cases in the U.S. spooked investors hoping for a smooth economic recovery.
Gains this week are likely tied to the election outcome, according to Steve Chiavarone, portfolio manager at Federated Hermes.
"It's a big relief rally, and in particular, it's because right now it looks as though the most likely outcome is a [Joe] Biden presidency with a Republican Senate," Chiavarone told CNBC's "Trading Nation" on Wednesday.
He added that investors are likely feeling more optimistic that the chances of a Democratic sweep have dwindled – a "blue wave" would have boosted the prospects of an increased corporate tax rate, which could have hit the tech companies, and higher capital gains taxes.
"That looks like it's off the table right now and I think you're seeing a big sigh of relief in the tech names. Whether or not that'll hold as the recovery continues and we move forward, we'll have to see but right now I think the biggest beneficiary from a sector perspective of what looks to be the outcome, and I say that because it's still uncertain but what looks to be the outcome, is certainly the tech industry," said Chiavarone.
Matt Maley, chief market strategist at Miller Tabak, is watching one level in the XLK technology sector ETF to determine whether the comeback can continue or fall apart.
"If we're wrong and tech does roll over, we have a definitive level at the $110 level. That was the old resistance level from the summer, we broke above it. … Old resistance is now new support. We've bounced off it a couple of times. So if it breaks below, then we want to get out," Maley said during the same "Trading Nation" segment.
The XLK ETF was trading just below $121 on Thursday morning.
One stock that could be used as a litmus test for the tech sector is Advanced Micro Devices, Maley said.
"That's been a great name this year, although we've been kind of trading sideways recently, but it bounced off the neckline of a head and shoulders pattern. That comes in at $74.75. If it breaks below that neckline, it's going to be quite negative. Again, then you want to bail out of it. … If it continues to bounce off that neckline at $74.75, it could be a good stock to run with, as well," said Maley.
AMD shares have risen 130% off lows set a year ago. It traded Thursday at $82.
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