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Just when the bears thought it was safe to take a peek out from their dens, leading technology companies shred earnings estimates and their stocks leapfrog back into the lead. While the broad market was healthy enough to forge ahead without big tech as other sectors came into their own, it certainly doesn’t hurt to have them back in rally mode.

If we look at last week’s action in the group of leading tech stocks known as FAANGs or FAAMGs, we should be quite impressed. These acronyms include various combinations of Facebook (ticker: FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX), Microsoft (MSFT), and Google parent Alphabet (GOOGL). (I might substitute graphics chip maker Nvidia (NVDA) for Netflix based on its superior performance over the past two years.)

Thanks to great quarterly earnings results, both Amazon and Alphabet soared above resistance levels and back above the $1,000 share level (see Chart 1). In fact, Amazon shot the bears’ argument—that the stock was in the midst of a giant head-and-shoulders topping pattern—to pieces. If that were true, it was heading for at least an 11% drop from the bottom of the pattern near $935 to the $825 area. The stock traded at $1,108 Monday afternoon.

Chart 1



 
In technical analysis, failed bearish patterns are often bullish signals.

There is a caveat: All of these stocks are well into their bull runs. Amazon, for example, is up over 46% year to date.

Microsoft, which also beat its earnings expectations last week, leapt higher from what already were overbought conditions (see Chart 2). Up nearly 35% this year, the stock now trades well above its short-term moving averages, making it especially prone to a “reversion to the mean” snapback decline. That does not mean the bull run is over, but it could easily drop 5% before new buyers see any gains.

Chart 2



 
Further, the odds that Microsoft’s gains were thanks to a final blow-off of buying, also known as capitulation of the bears, are not trivial. The jump, or gap, higher last week may turn out to be an exhaustion of demand. The problem is we can’t determine that right away.

If the stock holds its ground for a few days, then it is quite possible it is just resting before pushing even higher. But if it gives up a large chunk of its gains, then we have to think the stock is exhausted and in need of a long rest or pullback.

Even without specific earnings news, Facebook soared last week to break out from its own trading range (see Chart 3). The technicals are quite compelling, from getting back above the important 50-day average to very heavy volume on the breakout move to solid momentum readings. This is a welcome development for a stock already sporting a more than 54% gain on the year.

Chart 3



 
Emotionally, it may feel right to think that this market—and these big tech stocks in particular—are in dire need of rest. And after the bearish key reversals seen one week ago, it does seem that the time is right for a marketwide pullback. Events outside the market itself, including investigations in Washington and the specter of higher interest rates from the Federal Reserve, provide convenient excuses for stock declines.

But breakouts on the charts are breakouts. Plus, new highs Friday negated the big reversals we saw last week in the Standard & Poor’s 500 index and the Nasdaq Composite.

To be sure, no breakout is a guarantee of further gains. It is always possible for the market to change its mind on a stock or index. Indeed, Monday’s midday weakness a direct result of the disappointment over possibly not getting a swift and comprehensive tax cut. (The House reportedly may phase them in over a five-year period.)

While technical breakouts sparked by better-than-expected earnings are positive signs, we always have to be on the lookout for negative developments. I outlined some of them here last week, including the two-month trendline on the S&P 500, market breadth, and money flows.

Some of these indicators got dinged a bit last week, but all are still intact for the bulls. And even if they do fold and the market pulls back, there are still no signs yet that a major decline is in the works.


Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.