William O’Neil protege and O’Neil Global Advisors CEO Steven Birch joined the podcast this week to discuss parallels between the 1999 stock market and the current bull market. He also analyzed Zoom (ZM) and Tesla (TSLA) as potential case studies of a rare sell signal. Zoom stock surged as much as 602% this year through Tuesday’s high, while Tesla stock skyrocketed as much as 618% since the March coronavirus stock crash.
Audio Version Of Podcast
Video Version Of Podcast
Stocks Pull Back From Record Gains; Tesla Stock Crumbles
The major indexes are selling off after hitting record highs earlier in the week. The Nasdaq composite is on track for a 5% decline in Thursday’s session. The drop comes a day after the tech-heavy index closed above the 12,000 mark for the first time ever.
It was a similar story for the S&P 500. After surging early in the week to new highs, the S&P is plunging more than 3.5% Thursday.
Highflying tech stocks in particular took the brunt of the pullbacks.
Tesla stock tumbled 8% Thursday. The electric-car maker is down more than 6% for the week. Apple (AAPL) also plunged Thursday after dropping 2% the day before.
Zoom stock saw sharp losses in trading action as well. Shares of Zoom fell 7.5% Wednesday and continued to drop further on Thursday.
“It’s very similar to what happened in 1999,” Birch said of the current bull market. “There’s a lot of euphoria there. Valuations are stretched.”
IBD’s The Big Picture column noted on Wednesday that the major indexes were showing signs of being overextended. That signaled a pullback was due.
“We’re in a bull market and you’re getting distribution,” Birch said. “We are picking up that there’s a change in character.”
Birch suggested investors remain attuned to market signals and get defensive to protect gains.
“Interpreting it day-by-day, week-by-week helps you to put aside your prognostications and your opinions,” Birch said. “You’ll respond in kind by reducing your exposure to equities.”
Zoom Stock: A Case Study In Climax Tops
Birch also gave an in-depth explanation of a rare sell signal called a climax top. A climax top signifies that a stock may be getting overextended and is in the process of topping. Recognizing this signal gives investors the opportunity to lock in gains before the stock drops off.
By learning how to recognize climax tops, Birch says investors can avoid becoming swept away by market euphoria.
“Ignore all the opinions and all the emotion,” Birch said. “Really try to book some of this (profit) on the way up rather than selling after the stocks have peaked.”
Birch analyzed Zoom stock as a potential example of a climax top.
“It really remains to be seen whether we’re going to have a continuation of this work-from-home,” Birch said. “But when you’re in the middle of it all, it’s really hard to know whether it’s truly secular or not.”
Listen to the full podcast to hear Birch’s analysis on climax tops.
Tesla Stock: Room To Go Higher?
Additionally, Birch and host Irusha Peiris also examined Tesla stock. The Elon Musk-led car company has seen a monster run since the coronavirus stock market crash. Through its Tuesday peak just over 500, Tesla stock rocketed over 600% from its March lows.
But is there room to go higher? Birch says investors should look to moving averages to help determine the trend of Tesla stock.
“The moving averages are great tools to help you answer that simple question,” Birch said. “Right now, Tesla is fine. It is still bullish. It is still in an uptrend.”
Interested In Zoom & Tesla Stock?
If you’re looking for the next top stocks primed to make big moves, check out IBD’s Stock Lists page. To get IBD’s real-time assessment of leading names like Zoom stock and Tesla stock, check out IBD’s Stock Checkup page.
YOU MAY ALSO LIKE:
This post was originally published on *this site*