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Tech Stocks Are Already Reflecting the September Effect

Published 09/11/2023, 03:13 AM

Apple (NASDAQ:AAPL) sold off last week following reports of China's plans to ban state employees from using iPhones for government work and from being brought into the office. The second concerns Nvidia (NASDAQ:NVDA) and suggestions circulating online that the recent blow-out earnings resulting in the stock price achieving a high of $502.66 may have been boosted by some very creative accounting to allow certain parties to cash out at this high. Whether that is true remains to be seen. However, what is not in doubt is at the moment, the Nvidia H100 chip at the center of the current AI euphoria is at present unique, with demand outstripping supply.

When these narratives surrounding a stock take hold, and the price reverses sharply, it’s useful to look at the slower time charts not just for any signals of potential weakness perhaps waiting to be triggered (a bad piece of news is always helpful!) but also for clues as to whether the current reversals are simply corrections in stocks that have been dominating their sector and index since the beginning of this year. In this case, the relevant tech sector may be worth considering, and if you have seen any of my commentary on Nvidia, I first highlighted the stock back in January and the tech sector in general as one that would likely recover in 2023.

Moving to the charts, let’s start with the XLK (the ETF for technology), where tech company allocation is over 94.13%. At present, Apple is the top holding at 23.18%, and Nvidia a more modest 5.04%.XLK Monthly Chart

For Apple (see below), the monthly chart is also interesting, in particular the July candle, which is clearly anomalous from the perspective of Wyckoff’s third law of effort and result, suggesting we should expect weakness ahead.Apple Inc Monthly Chart


In summary, what are we to make of this shaky start for September, which, for many commentators, has simply confirmed that September is likely to live up to its reputation of being the worst month for the S&P 500?

The macro background is certainly not supportive as bond yields continue to rise and are now joined by rising oil prices, which will feed into inflation.

However, we may have some clarity this week with the CPI and Retail Sales data with the FOMC the week after. Whatever happens, it’s not going to be a quiet month for either traders or investors.

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