GoNoGo Charts: Can Technology continue to dominate?The technology sector has outperformed on a relative basis in 2020. Tech stocks in general were hit less hard by the COVID-19 pandemic and have rallied quicker and further than the rest of the market since the lows in March.
Right now, the five largest stocks by market cap in the S&P 500 are Microsoft, Apple, Amazon, Facebook and Google. And between them, they make up around 20% of the index.
They have been the drivers of the current post crash move. So what happens if technology starts to struggle? Is it time to protect against downside risk?
The above chart is the daily GoNoGo chart of the Technology sector Spyder, XLK. While it is still in a “Go” trend, there are some signs of troubled water ahead.
Price has fallen below an upward sloping trend line, and could likely now find it to be resistance. In doing so, it looks to have made a lower swing low.
If we look at the GoNoGo Oscillator in the lower panel, we see strong *bearish divergence. While price has continued to make higher highs, the oscillator has not confirmed, instead making successive lower highs.
We are at an inflection point, with the GoNoGo Oscillator resting at zero. We would need to see this hold as support and then bounce off zero if the “Go” trend is to persist. If the oscillator fails at zero, breaking into negative territory, we expect price to correct further, potentially leading to a change in the GoNoGo Trend above.
