What's going on with the Stock Market? (Week 2)
This week in the markets we are going to focus on the tech sector as it is getting completely ROCKED right now. What was once a freight train is now getting a bit off track, but is it time to buy or cut your losses?
Ok so we are going to start with the QQQ and it's major holdings, Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Google (GOOG), and Facebook (FB).
Ok so let's start with the QQQ chart...
So looking at this chart we notice a few things. First, there has been a ton of both pain and volume recently (see the orange dotted circle to the bottom right). Currently we sit at about -12% from the recent highs in September. Much of this sell off can be attributed for few things. 1) As the interest rates climb, these high growth companies could slow since the cost of growth will increase with the cost of capital. 2) China tariffs are getting to be a bigger and bigger concern. Though recently this concern may be getting closer and closer to a resolution, though the stocks are not reflecting that. As the Whitehouse releases information on the trade discussions, the market is receiving it with less and less believability. The market seems to be saying "Show me a deal or don't show me anything."
3) Missed earnings in the most recent earnings season could also be a scary indicator. As the guidance for Amazon was lowered, and Apple cut the iphone sales numbers completely out of their reports. The market is taking this as a sign of slowing growth, and with lower numbers coming from semiconductor providers, we should see this as a leading indicator tech could see more pain.
So what's the good news? Well let's take another look at the chart...
So one piece of good news is that we are beginning to see the channel narrow which means volatility could be subsiding. The other good news is that even after this recent decline the index has still not set a new low. If we can set a double bottom here, we may have a very real chance to move higher, technically speaking. Also, we can draw some similarities to the current chart technicals and the same technicals in March and April (far left orange circle), which lead to a monstrous climb.
Now let's move on to some of the larger holdings...
Staring with Apple at 11.83% holdings, we can draw some simple conclusions. Yes Apple has large exposure to China, and Apple also just removed iphone sales from their quarterly reports which all but shows iphone growth will slow, but does it matter? With the stock still holding this trendline (though dangerously close) and the holiday season coming in with a near record high CCI (consumer confidence index) I think Apple is on solid footing. The mountain of cash they have in the bank is a nice safety net also. And did we mention that Apple is Warren Buffet's largest holding? I think we are ok here, but I would watch for Apple to fall through this trendline and signal more trouble
So with the rest of the market in turmoil, Microsoft is basically saying, "Here, hold my beer." MSFT has barely flinched as they have not even drifted below their 200 day MA.
Ok so the current volume is just another day in the park for Amazon as shown by the lower red dotted line. So nothing new with volume here. Also Amazon is revisiting it's recent bottom, so it's decision time here, are we going up or going lower? On a positive note, after recent lows Amazon did taste fresh oxygen again, breaking back up through it's 200 day MA, emerging from that tunnel of shit, just like Andy Dufresne. The question is how much more of the 500 yards do we have left to crawl through?
For Google I think and argument could be made either direction. The trend is solid and it's down, but ew are near the year lows which could provide a floor...or a catalyst to move lower. This one is a coin toss in my opinion
Facebook is fucked. It's that simple. They are locked in a downward spiral. Between regulations, international tension, and user growth slowing I can't see facebook turning it around unless they monetize whatsapp and show a massive beat and raise quarter. But honestly the flagship site (facebook) has some serious issues. My brother who is still in college doesn't even use facebook. Shit when I was in college facebook was life, everyone used it. Now it's a bunch of grandma's posting cat pictures and people spewing political opinions. The minute a kids mom got on facebook and asked to friend him/her facebook was over being cool. Now facebook's saving grace is that they also own instagram, which is still highly used. But can they make the product switch or save the facebook platform? Time will tell, but I would either short this name or stay far away.
I think we probably are at a decision point in the tech sector. We are back at recent lows, and you either double down or you move on down the road. There are some big possible catalysts for tech in the next couple months.
1) Trump could make a deal with china at the Nov. 30th summit, which would be a huge tailwind lifting tech higher.
2) Powell could decide to slow interest rate hikes which would provide more growth capital and allow analysts to rerun models with the lower interest rate factored in.
3) Tech could post a monster earnings in January that shows that growth and earnings has not infact peaked.
I believe right now the market has not priced in any of these 3 catalysts occurring. Right now we are all negative which could provide a nice pop if we get some things to turn our way. As always, it's your call and I'm just giving my opinion. Good luck and may the odds be ever in your favor.
Also here's a disclaimer that you should read:
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