I’ve been writing the words “bear flag” pretty frequently lately with regard to the various bounces going on in some stocks. Below are a couple of pictures of bear flags in Semiconductors and Tech. If they are what they appear to be the implication is that we have had a bounce in many former leaders (esp. in Tech and that hyped ETF that holds all the over-valued sexy stuff, ARKK) over the last couple of weeks.
The bounce in the sexy stuff may be failing (i.e. bear flags). If that is the case it might play out with the leaders making new corrective lows and the Dow and SPX making routine corrective pullbacks. Globally the same could be expected. The excuse to sell appears to be the jitters over long-term interest rates rising, which as we’ve belabored, should have been expected all along (speaking personally, I’ve expected it for a year and counting).
The bear flags seem to be clustered in the leadership items while Dow, SPX and many reflation trades like Energy, Financials, Materials, Industrials and some commodities are taking varying degrees of pullbacks, from small to hard, to relieve overbought status. But these are within intact uptrends.
Starting with the leading Semis (SMH), the bounce will have been a bear flag if today’s firmness does not resolve into new upside that takes out the SMA 50. If it fails it would be reasonable to allow for a test of the rising SMA 200 if so. Also note the gaps from early November below the SMA 200. This could be a buying opportunity, assuming the macro stays intact (e.g. Philly Fed’s booming numbers today).
QQQ is very similar. The objective would be the SMA 200, but note that fat gap in early November. Tech is not going anywhere negative fundamentally, but its valuations could bring it down for a buying opportunity. Let’s watch the bear flags to see if they play out.
For reference, here is the normal looking pullback in SPY. If the leaders go on to make new lows we’d expect SPX to at least crack the SMA 50 if not test the SMA 200.