Tag Archives: #techstocks

Once Again Crumbled

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The Techquity rally has stumbled
Though oil has once again crumbled
But pundits don’t care
As they’ll still declare
They’re right. They can never be humbled

Some days are simply less interesting than others, and based on the number of new stories, it seems today is falling into that category.  That’s not to say that some markets haven’t moved, there has been some significant movement, it’s just that the movement is based on the same rehashed story lines we’ve heard for the past several weeks.

For instance, the below chart of the NASDAQ, with daily candles, shows just how choppy the tech sector has been this month.

Source: tradingeconomics.com

For the market technicians, if you are inherently bearish, this will read as a double top and the next leg is lower, targeting something with a 26000 handle.  However, if you are bullish, you will make the case that this is the end of the “c” wave and we are ready to break to new highs above 31000. 

That’s the thing about market technicals, they remain in the eye of the beholder. If you ask about new news, arguably the Micron Technology earnings were the biggest story of the week, but despite a tremendous outcome, tech stocks could not hold any early gains.  The flipside is that OpenAI has postponed their IPO until next year, a clear sign that they are concerned with sufficient investor capacity.  Again, spin it as you see fit, since there is no right or wrong here, but there are conflicting sentiments.

My point is that while there have been headlines, there hasn’t been any news.  Or consider oil (-3.1% this morning), which as you can see from the chart below has fallen back to prewar levels.  

Source: tradingeconomics.com

Yes, there was an incident with some freighter being hit by an unidentified object in the SOH, and that jangled a few nerves yesterday, but apparently fully laden VLCCs carrying 2mm barrels of oil, are fleeing the Gulf in ever larger numbers.  I read that 78 ships transited yesterday and as you can see from the chart below from the WSJ this morning, the trend is higher.  

All of the stories about tank bottoms and a sudden spike higher in the price of oil continue to be nothing more than fear porn.  As Alyosha from Market Vibes notes, the likely reason for less inventory is the oil companies are expecting a huge influx of oil from the Gulf and they need some place to put it.  Again, these are warmed over stories and not new news.

By all accounts, we are continuing along the recent path where oil prices continue to normalize while other markets search for the next big thing.  For stocks, the AI debate continues to rage on as to its impact on the future, while resource companies continue to be seen as a place to hang out given the needs of the economy as it grows, and that is a global comment.  For bonds, is inflation fading or persistent and setting to move higher?  The recent view is fading, but obviously that is subject to change.  And the dollar?  It’s had a nice rally, but is it about to break to much higher levels or reverse course?  Over time I see it higher, but for now, not so much.

Ok, let’s review the overnight session.  Tech stocks in Asia had a rough go of it, reversing yesterday’s gains as Japan (-4.15%), China (-3.0%), HK (-1.8%), Taiwan (-3.6%) and Korea (-5.8%) all reversed yesterday’s rallies.  The below chart from finance.Yahoo.com of the KOSPI gives an excellent sense for the magnitude of the moves this week.

Elsewhere in the region, there was far more red than green, but those were the standouts.  In Europe, everything is lower this morning as well, with Germany (-1.2%) the laggard, although there is no news that would lead you to believe things are worse there than in the UK (-0.8%), France (-0.7%) or Spain (-0.4%).  It’s a soft day.  US futures are on this same path with NASDAQ (-1.2%) leading the way lower.

In the bond market, yields are little changed to slightly softer this morning with Treasuries (-2bps) actually leading while European sovereign yields have edged lower by -1bp across the board.  Interestingly, JGB yields (-3bps) are slipping and some pundits are making the case we have seen the highs in 10-year JGBs, at least for quite a while.  Certainly, looking at the chart below, the case that the uptrend has been broken is viable. Last night, Tokyo CPI data was released there at 1.6%, as expected and well below the 2.0% target.  Is it possible that inflation pressure there is abating as well?

Source: tradingeconomics.com

In the metals markets, it appears that the rout is on hold, at least for now, as gold (+0.5%), silver (+0.7%) and copper (+0.6%) all seem to have found recent support with gold holding the $4000/oz level and copper the $6.00/lb level.  We saw a massive bubble in these that has deflated, but real demand remains in place.  China continues to hoover up gold, and the electrification narrative has not disappeared, nor the data center one, both of which require massive amounts of copper.

Finally, the dollar is softer this morning, slipping somewhere between -0.1% and -0.3% vs. almost all its counterparts.  NOK (-0.4%) is an outlier as oil slides but otherwise, it is hard to get excited here at all.  JPY did not make another new low last night, so it has that going for it.

On the data front, this morning brings the Goods Trade Balance (exp -$85.0B) and then Michigan Sentiment (50.0).  Yesterday’s PCE data is a perfect example of the narrative, and how there is a real attempt to write a story from nothing.  While GDP rose more than expected, as did Personal Income and Spending, the PCE data was right on expectations, or even a tick low in the headline monthly number.  So, this was clearly priced into markets.  Yet virtually every headline I saw was how these were the highest prints since 2023, which as you can see in the chart below, is absolutely true, but hardly newsworthy.  But it makes for good headlines if you are trying to tell a story of rampant inflation.

Source: tradingeconomics.com

At any rate, that’s all I’ve got today.  My take is oil is still heading lower although Techquity prices just might follow for now.  However, I’m not in the collapse camp there.  And the dollar?  Softer for a bit, but I have a feeling all we’ve done is widen the range, not really broken out.

Good luck and good weekend

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Cracks Have Shown Through

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A shift in the narrative view
On AI has started to brew
What folks had thought certain
From behind the curtain
Seems like, now, some cracks have shown through
 
For stock markets, this is bad news
‘Cause AI has been the true fuse
Of recent price action
And any distraction
Could well, bullish thoughts, disabuse

 

While equity markets around the world continue to trade near record highs which were set just weeks ago, there has been a subtle change in the narrative, at least based on my perusal of FinX.  Although there are still many in the ‘buy the dip’ camp who strongly believe that it is different this time and AI is the future, there has been an increase in the number of voices willing to say that things have gone too far.  One of the stories getting a lot of press is the fact that Tesla’s shareholders voted to give Elon Musk a pay package that could amount to $1 trillion if the company meets its milestones over the next 10 years, including having the company’s market cap rise to $8.5 trillion from the current $1.5 trillion.  This certainly has a touch of excess attached to it.

But more broadly, I couldn’t help but notice this graph, originally created by the Dallas Fed, but more widely disseminated by the FT showing the potential future of AI’s impact on humanity.  Under the standard of a picture is worth a thousand words, I might argue the information in this picture falls some 985 words short.  Rather, they simply could have said, ‘AI could be amazing, it could be catastrophic, or it might not matter at all.’ 

However, aside from the inanity of this chart, and more importantly for those paying attention to markets and their portfolios, things look a bit different.  There has been a lot of discussion regarding the everything bubble which has been led by the massive increase in value of the Mag7 stocks.  Recently, it set some new valuation records with the Shiller CAPE (Cyclically Adjusted Price Earnings) ratio now trading at its second highest level of all time, at 41.2, exceeded only during the dotcom bubble of 2000.

Source: @DavidBCollum on X

Added to this is the fact that only about half the companies in the S&P 500 are trading above their 200 day moving averages, a key trend indicator, which implies that the uptrend may be slowing, and the fact that we have had seven down days in the past eight sessions (and US futures are lower this morning by -0.2% as I type at 7:15) indicates that perhaps, a correction of some substance is starting to take shape.

Source: tradingeconomics.com

As of this morning, the S%P 500 is merely 3% below the highs seen on October 29th, so just a week ago.  The conventional description of a correction is a 10% decline, and a bear market is a 20% decline.  I am not saying this is what is going to happen, but my spidey sense is really starting to tingle.

Source: giphy.com

Remember, I’m just a poet, and an FX one at that, so my takes on markets are just one poet’s views based on too many years in markets.  This is not trading advice in any way, shape or form.  But what I can say is, be careful with your investments, things are changing.

So, let’s move on to the overnight session to see how things played out following the selloff yesterday in the US.  Let me say this, it wasn’t pretty.  Pretty much all Asian markets were lower to end the week led by Korea (-1.8%) which has seen its market race higher than the NASDAQ this year, but there was weakness in Japan (-1.2%), China (-0.3%), HK (-0.9%), Taiwan (-0.9%) and Australia (-0.7%) with most other regional exchanges flattish to lower by -0.5%.  Given the tech story is critical to Asia overall, if that is starting to falter, we can expect these markets to slip as well.  Too, there was news from China showing its Trade Surplus shrank slightly, to $90.7 billion, but more ominously, exports actually declined -1.1% while imports rose only 1.0%.  Arguably, the reason President Xi was willing to make a deal with President Trump is because the domestic economic situation in China is troublesome and he knows that more trade problems will be a domestic nightmare for him.

In Europe, red is the dominant color on screens as well with the IBEX (-0.9%) leading the way lower, but the DAX (-0.9%), FTSE 100 and (-0.7%) and CAC (-0.5%) all fading as well and losses the universal story on the continent.  Now, we know that it is not a tech story since, arguably, Europe has no tech presence.  So the problems here are more likely a combination of following the global trend lower and ongoing soft Eurozone data implying that economic growth, and hence corporate profits, are going to continue to be weak.  With the ECB taking themselves out of the equation for now, claiming rates are at the correct level and turning their focus to the idea of a digital euro (which will never be important), if we continue to see the US market slip, you can be certain that European bourses will follow.

In the bond market, it is hard to get excited about anything right now as Treasury yields, which slipped a basis point yesterday, are higher by 1bp this morning.  We remain right at the level from the immediate aftermath of the FOMC meeting, which tells me that traders are awaiting the next major piece of news.  European sovereign yields are also higher by 1bp across the board with only the UK (+3bps) the outlier here today while JGBs overnight slipped -1bp following yesterday’s Treasury price action.

In the commodity space, both oil (+0.8%, but below $60/bbl) and gold (+0.5% but below $4000/oz) continue to trade in a range and basically have not moved anywhere of note over the past 2+ weeks as you can see in the chart below.

Source: tradingeconomics.com

There have certainly been some choppy moves, but net, nothing!  Silver (+1.0%) however, has gotten a boost after the US designated it a critical mineral implying government support.  It would not be surprising to see silver outperform gold for a while going forward.

Finally, the dollar remains an afterthought to markets.  The DXY rallied to above 100 briefly, but has now slipped back below that level into its multi-month trading range as per the below chart.

Source: tradingeconomics.com

Looking at the major currencies today, +/-0.2% describes the price action, which means nothing is happening.  The only notable difference is KRW (-0.7%, which has continued to decline on the back of growing outflows of capital, perhaps anticipating the flows that will come with Korea’s promises for investing in US shipbuilding and semiconductor manufacturing.  But the won has been tumbling since early July, down 8% in that period.

Source: tradingeconomics.com

And that’s really it this morning.  Looking at the KRW, though, we must really consider what I mentioned yesterday about the Supreme Court’s tariff ruling, whenever that comes.  If the tariffs are overturned, it’s not the repayment of those collected that is the issue, it is the change in the investment flows, and that will be a very good reason to turn negative on the dollar.  But until such time, while risk managers need to stay hedged, traders have carte blanche.  If tech stocks really do correct, a risk off scenario is likely to support the dollar, at least for a while.  Hopefully, that won’t be today’s outcome.

Good luck and good weekend

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