It's fair to say we could be building out a longer-term bottom in tech stocks.
We had a strong washout, evidenced by the NDXA200R.
We’ve also seen back-to-back breadth thrust days:
So it's reasonable to start looking for hard reversion plays in tech.
The issue is... "which tech?"
You've got mega-cap names like AAPL, AMZN, GOOGL, TSLA, FB, and NVDA.
Those are good trading instruments, but they’re giant. You probably won’t see massive runners like you would in smaller company names.
There's a few concepts to consider.
First, if you're going to play the reversal, you should use options that are:
This kind of structure is one I wish I played in oil stocks when crude went negative… so that's the frame I'm working with right now.
Second, entries matter because many names have to build out a “stage-1” base for them to really start moving again.
A good example is PLTR:
The stock is trading sub-$10, and that's probably a good "value" for the stock.
But do you see the volume shelf into the gap fill?
There’s probably trapped inventory that’ll look to get out at breakeven, and then the stock will chop around in a range for a while.
That's what I see happening in many of these broken momentum stocks. Names like HOOD, COIN, UPWK, TWLO, and so on.
These can have "good" valuationsm, but until excess inventory clears, it's tough to sustain a rally without sellers coming in.
So what kinds of entries should we focus on?
Using the anchored Anchored Volume Weighted Average Price (AVWAP) against recent swing highs can give you a good clue on where and when to play these names.
COIN is a good example:
The swing AVWAP from the pivot highs is acting as a resistance level, but it's close enough to price because we’ve seen enough rotation into lower prices.
This means inventory is now priced at current market levels instead of higher. A push above that VWAP, and the key high volume node (HVN) could be good for a pop to the upside.
The other theme to work with is to look for large moves — ideally after earnings.
You can run a screener for 4% moves higher. Look for tech names to play to build a good list.
FNKO shows you an example:
After a great move on earnings, it round-tripped and filled the gap…
But saw instant price response into that. It's now at recent highs and has a great look on a weekly chart.
As more tech names set up for potential turnarounds, we’ll be looking for the best setups with our Market Roadmap.