US tech stocks look very vulnerable

Abraham George Macro View

Mar 09, 2021

Ever since the Georgia Senate run-off installed two Democrat senators in early January, it was apparent that the spending package the Democrats had in mind for $1.9 trillion was a done deal. As this bill has now officially become law, it will be interesting to see how foreigners view the reckless American deficit spending.

The biggest risk is that foreign investors sell the US treasuries and sell the dollar. So far that has not happened in anyway to threaten or doubt the system. No doubt bonds have been sold but has cooled off a bit since the start of the week and the dollar has been trading stronger.

So what’s really happening? The biggest store of value for global money over the past few years has been in the US big tech stocks. If you were a European global macro fund manager and were not invested in the major US large cap stocks, you under-performed heavily and could have been even fired by your investors. The picture of broader stocks looks vulnerable, especially when you consider the technical picture of some of the big constituent stock of the major index.

Currently, Facebook is down 16% from the highs, and is trading below the 200 day moving average. This is a big bearish sign for large cap fund managers as they treat the 200 day moving average as a dynamic trend line. So is Amazon which is down 17% and trades below the 200 day moving average. Apple is down 20% from the highs and is approaching its 200 day M/A. Tesla the darling of all millennials is down 37% from the highs of late January. A move down to the 200 day M/A will represent a 47% drawdown. Tesla has been the mascot of the global clean energy transformation. But money is moving out of it now.

So where is all the money going? So far, a lot is finding its way into value stocks in US itself. That is very visible through the divergence between Nasdaq and Dow which we will cover in the equity session.

Can a lot of this flow into emerging markets equity particularly India? I think it can but Indian markets are still too small to absorb a tidal wave of money of this proportion. Will the participants find the bond market attractive at 1.6% yield on the 10 years or will there be a wave of dollar selling? These are the million dollar questions that we will have to wrestle with in the coming days.

Equities

A large non-confirmation exists between the NASDAQ, which is at or near three month lows and the Dow which pushed to a new high. Yesterday the Nasdaq was down 311 points (2.41%) and the Dow was up 306 points (0.97 %). The instability of fractured trends in the context of late stage bull market is worrisome. The price action in most of the technology stocks are concerning. The Dow is trading opposite to the Nasdaq.

The S&P carried itself very close to our resistance levels and was topped out at 3881. A key level to watch on the downside is 3780. A break below that could give more confidence for much further selling.

Bonds

There is nothing much to add on Bonds. There is every chance for a snap back rally to relieve some of the decline-induced compressions so far. I think prices are still headed lower. The next downside side targets are centered at the 152 handle.

Euro

The Euro declined to 1.1843 and bounced back. The odds continue to change for the Euro. If the decline from 1.2243 is turning out to be a five wave pattern prices can drop to the 1.1600 handle. Will wait for a more clearer picture.

Gold

There is no change to our near term outlook on gold. Prices dropped to 1677. A snap back rally can take prices up to 1750 to 1760 but in the bigger picture we are still looking for move into the 1500 handle.

Breezy Briefings

Discussion about this post