Is a 'Tech' Rally Coming?

I think we are at an interesting juncture in the market ? The tea-leaves are back asking questions again and this coupled with “Stuff” happening far more quickly today, a result of traders no longer speaking to humans (or even sales-traders) and the passive money algorithms just move en masse instead….

The red flags that I had been worried about in the first half of the year, might be worth watching again here ?

Semis are often first in and first out of tech cycles, but it was the Chinese tech names that gave us plenty of warning that all might not be well in the western tech world.

JD, BABA, Tencent all started making rel lows in March of this year and the US semiconductor names also peaked about then. Then it was the turn of “growth names” go. We know the rest. This all of course coincided with a more hawkish FED, higher oil, rising bond yields and the start of QT.

The current question to be answered is whether we should have another look at some of these well loved growth and tech names ?

Below you can see that Tencent and BABA are making 3m rel highs vs the S&P. This is important and worth watching. It might be early as the NASDAQ is only -10% off its highs. But the YFANG is -20%.

Tencent & Alibaba ADR relative

Tech never just rolls over and dies….. even in the much hyped 2000 experience the NASDAQ rallied c 40% and took another six months before it stated to fall again. In 2009 it rallied 20% between March and May post the initial collapse. This has always been the way because the believers don’t just disappear.

However I’m not really making that point here and my call is not really about FANG etc and whether it bounces and then fails but more about the collateral opportunities.

I think it is now interesting to have a look at a couple of European names that fit the tech and “quality” bracket. I could throw in SAP, CAPGEM, ASML etc but I hadn’t appreciated the very tight correlation between the YFANG index, Amadeus and Dassault Systems(chart below) which are two names that are always worth buying on pull backs.

If it’s the “big one” and we are all about to enter a big recession, then ignore the above and sit in your staples etc.

But what if it’s not? Then perhaps the FED just needs to be a bit less hawkish ? Or bond yields roll over a bit more, and add in the move in oil of late, the backdrop might just be changing a little.

If this happens without a can economic catastrophe then I think we could see a decent squeeze in the tech space in the next month or so. Salesforce.com +5% on a better outlook over-night is interesting in this regard. It better hold if I’m going to be right ! …..Acorns and all that……

“Given the strength of this quarter’s results and the incredible customer demand we are seeing, we are again raising our FY19 revenue guidance and initiating our full year fiscal 2020 revenue guidance at $16 billion at the high end of the range,” Salesforce said in their statement.

Correlations….

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by Mr Crypto Lemon