Cloud computing stocks went through an amazing uptrend in the last 30 months. The sector ETF SYY has doubled in that same period of time. However, based on the chart setup, we may be looking at a huge though intermediate top that cloud stocks are setting in 2018.
Our forecast is based on the interpretation of SKYY ETF chart, in particular the trend channel. As said many times before, an absolute minority of price points on a chart are relevant in forecasting markets. Connecting those price points mostly results in patterns. And here is the point: the more precise the pattern the higher the probability that markets will continue to move in that direction.
Specifically, when looking at the SKYY ETF chart, we can observe that if price fails to break above 55 we highly suspect that the sector will go through a consolidation for at least 3 months. We suspect that, if this scenario materializes, the cloud sector will retrace some 20 percent, and consolidate until it continues its rise.
The SKYY ETF is likely to fall to 40 points, consolidate between 40 and 54 for a couple of months, before it continues its move higher later this year or next year.
An important note on the SKYY ETF composition: “SKYY allocates 10% of its portfolio to technology conglomerates that simply make use of cloud computing, and weights non-pure-play companies by their capitalization as a share of the overall market capitalization. The remainder of its portfolio covers pure-play companies. This takes SKYY far afield from our broader technology segment benchmark, tilting to midcaps with significant sector biases.” There are many large caps in this sector ETF, and also non-pure-play providers, so readers may be interested to also check the SOX index if they want to have deep(er) insights into the semiconductor space.
Note that this move may or may not affect our 2018 forecast on 4 cloud stocks which we published towards the end of last year. Note that this forecast has already delivered magnificent results.
