The Bears Will Have to Wait for a Tech Crash

Imagine a firm that grew revenues by 42%. Coming in at a grand total of $13 billion. In just one quarter!

That would be a good result. Wouldn’t it?

Or, one that grew revenues by 24%. With profit coming in at $100 million for the quarter. A record in the company’s history!

Again, a fair result. Wouldn’t you say?

Well, you don’t need to use your imagination.

These were actual earnings results from the US reporting season.

Yet to some, these figures were signalling a market collapse.

And the two companies?

Facebook and Twitter, as you probably guessed.

Yes, these stocks were heavily sold down.

It brought out all the bears, and out came all the sweeping statements.

About a ‘tech wreck’ and the coming social media apocalypse.

But understand by and large what’s going on here.

Stocks become fully priced.

And when they do, they will sell down on news.

Now they were big moves. I don’t make light of those moves down. 

And it didn’t help that both companies gave guidance of slowing user growth.

But it’s probably unrealistic that Facebook (or any company for that matter) will continue to grow revenues by over 40%, year in year out.

So Facebook‘s not telling us anything new.

Guidance is a best guess. We don’t know for certain.

But what we do know is this.

For the recent quarter, Facebook recorded strong revenue growth. As for Twitter, they posted their largest profit in the company’s history.

To suggest these companies fell on disappointing results is absurd. How can a record profit be disappointing? It shows a lack of understanding about market movements.

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Now, here’s a couple of things to take away from this and apply to your own trading.

Know that newspapers are sold on emotion grabbing headlines. It can be misleading.

Analyst’s opinions about a coming technology crash are just nonsense.

Apple grew revenues by 17%, Netflix revenue rose by 40%, Amazon grew revenues by 39%, Google owner Alphabet grew revenues by 26%. And Facebook grew revenues by 42% and Twitter by 24%, setting a company profit record along the way.

Are Those Numbers a Precursor to a Tech Crash?

Those numbers are a precursor to a tech crash?

I can’t be as certain as some others are. Not based on those numbers anyway.

As always, go to the charts if you want to find out what’s really going on in the world.

You already knew a crash of the tech titans was most unlikely. Months ago! You didn’t have to wait for the earnings results.

And here’s how you knew.

Companies like Facebook, Apple, Netflix, and Amazon make up a large weighting on the Nasdaq index. So any sign of a tech wreck would be bound to show up on the index.

Let’s bring it up.

Graph of Output Growth and Inflation Forecasts

Source: Optuma

[Click to open in a new window]

The chart was telling you months ago the tech titans were growing revenues.

As for the coming tech wreck, the bears will have to wait a while.

And here’s why…

There is nothing in that chart which forecasts a tech wreck.

Nothing.

There are no reversal patterns to be seen. There’s no rounding type pattern. Nor any sign of a deathly double top.

There’s nothing in the chart that suggests a tech collapse is imminent.

As for Facebook, here’s how you can follow the company from here.

The so called ‘disappointing’ earnings results will bring in the low.

Here’s the important point to understand.

That low is likely be a higher low on the weekly chart.

And once that low comes in, the weight of money will tell you the future direction of revenues.

If that low holds, and Facebook continues to make higher lows on the chart, then the company will be growing revenues.

And all those predicting the company’s demise will be proved wrong.

A company which just grew revenues by 42% is not going to fall to the floor. Despite all the dire predictions

In fact, I’ll be surprised if it gets anywhere near $150.

But that’s just my opinion, which means little.

But rather than follow opinions, (mine or otherwise), follow the weight of money.

If you want to go beyond the usual analysis and read the charts to find out what’s really going on, then go here to learn more.

Terence Duffy,
Chartist, Phil Anderson’s Time Trader


Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.


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