Shares of Scottish Mortgage Investment Trust PLC (LON: SMT) are up 9.59% over the past week, boosted by the rally in the company’s growth stocks such as Tesla.
The last time we covered the stock on March 29, we asked if they were about to bottom, given that they appeared to have formed a sideways trading range, also known as a balancing zone, which is typically followed by a definite trend.
SMT shares bottomed a day later and have rallied 9.59% over the past week establishing a new bullish trend. Most investors’ question is, will the rally continue or weaken, paving the way for a downtrend.
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The short answer is nobody can tell what will happen in the stock markets, but we can look at the available data, draw some possible scenarios, and then place our bets on the most probable scenario.
Firstly, the fundamentals suggest that investors are moving money from growth stocks to value stocks such as airlines, banks, retailers, manufacturers, property companies and food and drinks companies.
The cyclical shift from the growth stocks that led the market’s rally in 2020 could put SMT in an uncomfortable position as investors abandon tech stocks, which will eventually fall.
Unfortunately, cyclical shifts tend to last for long periods, and it could be months or years before tech stocks become attractive to investors.
Keeping the above in mind, some conservative retail investors may choose to follow the smart money and invest in value stocks.
Let’s look at the technicals to determine SMT’s potential future direction for traders still interested in owning SMT shares. From a technical perspective, we could see SMT shares rally to their mid-February high of over 1400p if the bulls remain in control.
Otherwise, we could see the shares drop back to the 1100p level, which marks the bottom of the current sideways trading range.
Scottish Mortgage shares price.
Scottish Mortgage shares are up 9.59% since the start of April after bottoming on March 30, 2021.