(Photo by Mark Wilson/Getty Images)
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The main problem is how the NASDAQ Composite itself ended the week with a chart pattern unseen in months and months: a classic, unmistakable “bearish engulfing.” This is where buyers show up in the morning, as they’ve been doing for weeks, but by afternoon and into the close, sellers take over, a new development.
So, on the price chart, you see a big red bar with a higher high than the previous day and a lower low by the end of the session. It’s significant because it shows that the trading environment may have changed — especially when the pattern had gone out of sight for so long.
The NASDAQ Composite Index:
NASDAQ daily price chart, 1 25 20.
I’ve circled the “bearish engulfing” candlestick pattern in red — you can see how it’s actually engulfed the price levels of the Thursday and Wednesday trading session. It’s obvious how powerful this uptrend from the October low remains. That such a pattern finally emerges may be a distant early warning.
Here’s what the daily price chart of a major component looks like:
Microsoft daily price chart, 1 25 20.
Microsoft’s bearish engulfing on Friday is slightly different in that the stock hit its all time high on Tuesday and failed to make it back there for the rest of the week. The stock clearly remains in a powerful uptrend. That buying volume blast in mid-December is a remarkable 50 million-plus shares in one session.
This NASDAQ component looks a little different, but not much:
Apple daily price chart, 1 25 20.
Apple did not form a “bearish engulfing” price pattern on Friday. It sold off, for sure, but the low price remained above the previous days lows. You can see how the relative strength indicator (RSI) above the price chart — and the moving average convergence/divergence indicator (MACD) below the chart — are both diverging from price.
It’s fascinating to see the huge red selling volume bar in mid-December. Was someone major selling Apple and buying Microsoft on the same day?
Here’s the daily price chart of another big component, Alphabet:
Alphabet daily price chart, 1 25 20.
This looks a lot like the Microsoft chart — at least, looking at the pattern from this week. The stock formerly known as Google had already established a higher high on Wednesday and the selling on Friday took out the lows of the previous few days. Not a bearish engulfing, but some serious selling. Note that the uptrend stays in place, for now.
Okay, what about Amazon? Here’s how it looks:
Amazon daily price chart, 1 25 20 annotated
Well, sure, it’s a “bearish engulfing” candlestick — price engulfs the previous day’s pattern — but the stock is already down from an earlier January high. Also — and I’m sure Jeff Bezos has noticed — it remains way below the summertime high up near 2020. Amazon has not been keeping up with its NASDAQ friends.
Price chart analysis like this allows the investor to consider only the patterns of buying and selling. What the reasons might be for such movement is left to fundamental analysts and the study of earnings, balance sheets and the rest of that world.
I do not hold positions in these investments. No recommendations are made one way or the other. If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.