Passage of the Senate tax reform bill changed the market, making domestically oriented companies more attractive, and pulling the rug out from under internationally focused tech firms, at least temporarily.
But has the rotation out of tech run its course?
To find out, Jim Cramer went off the charts with Carolyn Boroden, founder of Fibonacci Queen and a contributor to RealMoney.com.
Boroden says the pullback in tech shares shouldn't have been a surprise. That's because, according to her methodology, many market moves tend to terminate around what are known as Fibonacci price extensions of prior swings.
(Fibonacci was an Italian mathematician who discovered a series of ratios that recur in nature and, oddly enough, the stock market.)
Boroden looks at a past swing in a stock or an index, then she runs it through the prism of these Fibonacci ratios. The results give her a series of important levels where a stock is likely to change its trajectory.
Boroden points out that Facebook (FB - Get Report) , Apple (AAPL - Get Report) and Netflix (NFLX - Get Report) all met Fibonacci extensions of prior swings -- meaning they replicated an entire previous move and then ran up another 27.2% or 61.8% of that move. Whenever that happens, she takes it as a sign to get more cautious.
Starting with the chart of Netflix, the stock dipped to $178 Monday, where it has a floor of support, before quickly rebounding. It's now back at $184. Second, and more important, Boroden likes that the stock's recent decline is very similar to the last two major pullbacks. When Netflix got hit in August and September, the stock lost 27 points; and the previous decline in the spring and summer also lasted for 27 points. The latest decline was 26 points, so if the pattern holds, it could already be over.
In the past, those $27 declines were followed by much larger rallies, both in excess of forty points before the moves ran out of steam. Of course, that doesn't mean it will happen again, but it's certainly gives Boroden confidence that the uptrend here is intact.
If Netflix starts falling again and breaks down below that floor of support, the next floor is at $167 to $168 -- that's the level to watch if the big tech sell-off picks up again.
In Apple, as with Netflix, Boroden says this is kind of a garden variety pullback. Apple hit the 161.8% Fibonacci extension of its previous swing and then the stock started coming down, exactly as her methodology predicts.
And Boroden will still like the look of this chart as long as the stock stays above $149, where it bottomed intra-day back in late September. But she doubts that things will get that out of hand. When you look at Apple's latest pullbacks, the most recent couple of them lasted for around fourteen dollars. If that happens again, it would take the stock down to $160. Apple has many floors of support between where it is now at $170 and that potential downside target.
Then there's Facebook. It recently hit an important upside Fibonacci extension target at $184 and change. The stock's recent declines have typically lasted for $10 to $11. It's now down more than $10 from where it was trading a week ago. If this is going to be another garden variety pullback, then today's rally could have legs.
But if it's the start of something much worse, there's a floor running from $169 to $170, another big floor that spans from $162 to $166, and a third floor at $157. As long as the price holds above one of these floors, even the lowest one, Boroden remains optimistic.
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