New market thoughts from Raymond James’ Jeff Saut: “Technology” 04/27/17

“As we contemplate COMPQ at 6000, and NDX at an all-time high, it is worth remembering that only 21 NDX components remain who were in at the 2000 top.”
. . . Tom McClellan
Yesterday Andrew Adams and I presented at the Raymond James Financial Services National Conference in Orlando before some 2,000 financial advisors (FAs). I tried to address the three most important things FAs want to know. They are: 1) Is everything going to be okay; 2) What can go wrong; and 3) What should we do? Speaking to question one, I related the story of “Old Turkey,” who was a very successful stock investor in the 1920s. Accordingly, other stock investors would come up to Old Turkey and ask what they should do in the markets. He would smile, cock his head to the side, and reply, “It’s a bull market you know.” It was as if he was giving his questioners the most important investment pearl in the world. And, that was my message yesterday because it is a secular bull market with years left to run. Speaking to question two, a nuclear incident with Iran or North Korea could certainly spook the markets, or crude oil could rise to $150 a barrel, but I don’t think those events are going to happen. Besides, I do not quite know how to invest for a “black swan” event. As for question number three, in a secular bull market you buy the “dips.”
Some of the themes I discussed in my presentation were: wide-bandgap semiconductors; the big data energy revolution; epigenetics; the direct to consumer marketplace; open source robotics; next-gen drug delivery systems; and contextual commerce. At that point, I turned the podium over to Andrew where he talked about individual investment ideas that play to those themes. Obviously, given those themes, Andrew’s talk centered on technology. Later in the day I read the above quote from Tom McClellan – “As we contemplate COMPQ at 6000, and NDX at an all-time high, it is worth remembering that only 21 NDX components remain who were in the index at the 2000 NDX top.” Subsequently, I pulled up a chart of the Nasdaq-100 Index (see chart). Studying that chart shows an upside “gap” breakout. Also worth mentioning is that the “upside gap” came out of a “diamond” chart formation. (Continued on page 2)
According to tradingview.com:
Identifying diamonds is very hard. Once identified, you need to be a good reader of it. Diamond patterns usually form over several months in very active markets. Volume will remain high during the formation of this pattern. The Continuation Diamond (Bullish) pattern forms because prices create higher highs and lower lows in a broadening pattern. Then the trading range gradually narrows after the highs peak and the lows start trending upward. The Technical Analysis occurs when prices break upward out of the diamond formation into a continuation of the prior uptrend.
Now, look at the NDX chart again, the “diamond pattern” occurred over several months, with high volume, and then the NDX broke out to the upside of that chart pattern this week. Could this be an exhaustion gap on the upside? Sure it could, but it could also be another new “leg” to the upside. That said, gaps tend to get filled so we would wait right here on a trading basis to see if there is indeed a pullback to attempt to fill the upside gap. However, rather than fill said gap, the biggest surprise would be a surge to the downside from here since our models are not sensing much in the way of negativity right here. And remember, as Marilyn Monroe sang, “Diamonds Are A Girl’s Best Friend” (Diamonds). Speaking to the new tax proposal, we think it is very positive for the midstream master limited partnerships (MLPs). And that’s the way it is as the sun rises over Disney World this Thursday and the U.S. and South Korea warn a defiant North Korea against new provocations, leaving the preopening S&P 500 futures flat at 5:00 a.m.

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