Is the bear market rally still on? Tech giants should lead the way
May was a volatile period for international stock markets as investors struggled with rate and stagflation fears. However, last week the S&P 500 index ended a seven-week losing streak. There is at least a tentative bear market rally going on. Typically, a proper bear market rally would amount to about 15 per cent, meaning we are about 2/3 through currently assuming history repeats itself.
May was a volatile period for international stock markets as investors struggled with rate and stagflation fears. However, last week the S&P 500 index ended a seven-week losing streak. There is at least a tentative bear market rally going on. Typically, a proper bear market rally would amount to about 15 per cent, meaning we are about 2/3 through currently assuming history repeats itself.
For the bear market rally to continue, the tech giants need to lead the way. Communication services have been a weak industry YTD, including sector bellwether stock Alphabet. Alphabet shares dropped following the Q1 report, despite strong operating earnings, likely as YouTube revenues fell somewhat short of expectations. Valuation has now dropped to the pandemic lows of the spring of 2020, with a forward PE of 19x compared to a five-year average of ~26x, see below:
Alphabet NTM PE-ratio since 2017
The shares arguably have some defensive qualities as well: In conjunction with the Q1 report, the board announced a share buyback program of USD 70bn, corresponding to a yield of around five per cent.
In the daily chart, GOOG shares have risen above the resistance of a falling channel and are currently struggling with the Fibonacci 23.6 level. There is a weak buy signal from MACD. In an optimistic scenario, we could see about a ten per cent upside to MA50/Fibonacci 50 levels.
GOOG share price graph, May 28, 2021, to May 11, 2022
In the weekly chart below, the shares are still traded in a long-term positive trend. However, in a scenario with a continued bear market, there is a considerable downside potential to the MA200 at around USD 1,800 per share.
GOOG, May 26, 2017, to May 31, 2022
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence