Key tech pullbacks

At Tricio we look at charts in order to gauge investor sentiment and behaviour.  A few weeks ago we posted a blog about Signs of Weakness in some key US sectors and shares. This blog looks at two US tech names that are in focus at the moment. While we are looking for pullback risk, keep in mind that our client focus is on the long-term investment process and helping our professional wealth managers and investors manage portfolio risk.

We have held a ‘neutral’ allocation view to US large cap shares for many years now, and on a three-year or longer view still believe that makes sense. Yes, we worry about high valuations and recognise the risk of buying shares at record highs and very expensive valuations. History has shown that pullbacks could last a few months to even longer (dot-com bubble). But, leaning hard against this is the view that time in the markets beats timing the markets for most investors.

Having said all that, the reason for looking at Alphabet (semi-log monthly chart below) and NVDA (lower chart) is that they have been key in this bullish tech share cycle.

Google recently drew a big investment from Berkshire which saw the share price hit new all-time highs on Monday. The monthly chart below shows a strong uptrend, but things can change and a pullback to the 12-month moving average (near 203) is not out of the question as the share price has swung around this average even as it trended higher in the past.

A deeper pullback to the 60-month moving average (near 143), last seen in 2022 in this share, would be a much bigger mean reversion drop than the market is anticipating at the moment. Watch the April high/lows near 166/140 as key support levels, with the January 2025 high near 205 important to watch ahead of these. If bull sentiment remains strong then dips may well hold above 264/255 nearby chart support over the coming weeks, and new highs could continue to be posted. Leaning to pullback risk building instead though.

The monthly chart for NVDA below shows that the strong run higher to record highs last month is being tempered. Keep in mind that bullish sentiment could return, as the company reports on 19^th November. However, if investors are taking a pause, a pullback to the 12-month moving average near 151 seems open.

The real worry is that AI fever turns into AI meltdown with a deep pullback to the 60-month moving average (5-yr.), near 65 now. This happened in the 2022 bear pullback, so we have seen mean reversion in the share before. This would be a deep tumble, which the market is not looking for at the moment.

For now, we are monitoring the 12-month moving average and the April high/lows (115/86 area levels) as key support to watch. If dips remain limited to the 12-month moving average over the coming weeks then the bull trend could easily carry the share price to new highs.  

Again, we are not outright bearish on the market or on key names. We are wary of pullbacks over the coming months though, and can see the risk of bigger pullbacks like 2022. Watch key levels over the next few weeks and the big risk of course is that corrective pullbacks turn into a big bear market. This risk is worth being aware of, and we will be watching tests of support to see if investor sentiment holds up.

Gerry Celaya, Chief Strategist