Tech Stock Hot Potato, Inflation, ‘Pain’ Trading, Chip Dips, Exxon Trading


We could see it being built a few months ago. March was a really sloppy month. The first half of April brought baseball and another rally for the IT industry. Now for a few weeks this time you can see him again. Capital flows are moving away from high valuation or growth type names to companies that produce, sell, or transport the kinds of things that hurt you if you let them down.

The technological space, including semiconductors, software / cloud types and computer hardware, as well as internet stocks which are no longer classified as “technological” stocks, after being transferred to communication services, are now the “hot potato”. Whoever holds the hot potato the longest is burnt.

The stock market action turned ugly on Monday, really ugly.

At the level of the index, the Dow Jones Industrials and the Dow Transports both gave up huge days of “rise” in their entirety when the bell of 11 Wall Street had peeled its last. These two were easily the outperformers of the day. The Nasdaq Composite (-2.55%) and the Nasdaq 100 (-2.63) were beaten from the start, as were small cap stocks.

At the sector level, what has been portrayed by asset allocation could not be clearer. In the 11 recognized S&P sectors, the four sectors considered defensive (Utilities, Staples, REITs, Health Care) took the first to fourth place of the day, while all four saw their representative Sector Select SPDR ETFs finish the day. day in the green. The two growth sector SPDRs (Communication Services: (XLC) and Technology: (XLK)) led the market down, dropping 1.9% and 2.5% respectively.

Which give?

Obviously, portfolio managers may or may not fear inflation … Portfolio managers may or may not fear tax reform. Clearly, they are now en masse, positioning themselves for a changed environment.

It’s not just here in the United States, either. The massive sell-off of types of technology spilled over into Asian and European markets overnight, as ECB board member Isabel Schnabel spoke about German inflation expectations.

Key consumer inflation data for April is due Wednesday morning. Regardless of this month, inflation might not seem so scary. Investors have learned to respect, through the annual 2% target often mentioned by the Fed (for decades now), anything higher than that. April’s inflation, year over year, at the aggregate level, will wipe out that target.

Of course, the pandemic has more to do with this than anything else. The massive fear of the virus adds to an economy intentionally shut down by inflation mandated to come to a complete stop for April, May and June 2020. The rate of inflation at the consumer level year over year is exacerbated. both by rising current inflation and by disinflation (not outright deflation, that’s different) seen a year ago.

Expectations for April CPI print are 3.6% growth, with some economists>

Wrong width

Sometimes we can find a silver lining somewhere in a “down” day once we explore the data. Not Monday, however.

The losers beat the winners more than 3 to 1 in the Nasdaq and more than 2 to 1 in the NYSE. Declining volume beat volume growth just as decisively in our two major exchanges. New highs broke new lows on both exchanges – around 14 to 1 on the NYSE. This kind of imbalance can sometimes be seen as a turning point, so wear your stupid helmet. Don’t make me tell you twice.

This happened when investors also pulled some funds off the long end of the Treasury curve. The 10-year note rose 1.6% on Monday and continued overnight. I now see (at zero dark-thirty) that the 10-year note is paying over 1.62%, while all of the major US stock index futures look weak as well.

I think we can easily see that a large number of professional portfolio managers, perhaps at the behest of their risk managers (few of them are really alone anymore), have decided to distribute stocks more widely. than they probably had been. positioned.

Very interestingly, this comes as first quarter profits have simply knocked the ball out of the park. As of the start of last weekend (according to FactSet), 88% of the S&P 500 had reported. The combined rate of profit growth (reported and projected) for the quarter reached 49.4%, while revenue growth is now 10%.

The second quarter consensus is now for earnings growth of 59.5% on revenue growth of 18.7%. All the while, the forward-looking 12-month P / E ratio had come in successive weeks, from 22.5 times to 22 times to 21.6 times, and after Monday, certainly lower than that. The net profit margin across the S&P 500 has so far reached 12.6%, down from 9.3% a year ago. It’s your ball game in a nutshell.

I wonder what rising input costs such as wage growth, higher costs for raw and finished materials, higher transportation costs, and higher corporate taxes will affect margins? Does anyone want to guess? Therefore, the valuation is forced to move towards earnings with a touch of uncertainty strewn with it.

Progress of a brittle twig

I guess most readers don’t know that if you fill your socks with vegetation and wear them over your boots, not only do you make less noise when moving through a wild environment, but you also leave less noise. traces and less easily identifiable. Hit a stone, or break a twig, however, and there is no hiding place. You just have to hope that a monkey or bird makes a sudden movement somewhere else, or better yet, find out that you are really on your own.

Readers will see above that the Nasdaq Composite will adopt 50-day Simple Moving Average (SMA) support and 21-day Exponential Moving Average (EMA) resistance. Support survived two piercings last week, only to see the door open on Monday.

The most dangerous thing I see here is that the index closed at its daily low on Monday, undercutting lower points from those two previous tests.

Still, the SPDR ETF (XLK) tech sector, above, has yet to cross that line. Now this is interesting. Let’s explore this.

Well, I guess we can’t blame the computer hardware industry, where “they” put Apple (AAPL), let alone Dell (DELL), HP Inc. (HP) or NCR Corp. (NCR), which is the former national cash register. What these companies do a lot of, even though they’re still tech stocks, are things that can still hurt if you let it fall on your feet.

We see above that the graph is getting a lot uglier for the software / cloud industry. Looks like I’m going to have to find a way out of that long position I had built in ServiceNow (NOW). By “out” I mean reduce exposure, I don’t mean “out”.

We’re going to have to get a financial engineering degree there. Actually the position is down for a few weeks, not down from net base, but I can’t stand there and hope. Hope is not a strategy.

Well here is the recent “pain” trade. Semiconductors are as hard as software, even harder lately. During a shortage. Semi-finishes don’t hurt if you drop them on your foot, but they are indeed very commodity-like in their characteristics.

We’re not wrong in thinking that managers are selling technology ahead of April’s inflation numbers. We are not wrong in thinking that the uncertainty surrounding the structure of the corporate tax is a concern. What was completely missed by most of the people who cover but don’t trade the markets is that the seismic shift around technology on Monday was more specifically focused on the semiconductor space than elsewhere, and the main catalyst was not the cyberattack on the colonial pipeline. or a confrontation between US and Iranian naval forces.

The catalyst was simply the fact that Taiwan Semiconductor (TSM), a worldwide smelter, reported revenues (in New Taiwan Dollar terms) for April that showed 16% year-over-year growth ( huzzah?), but unfortunately from month to month. month of “growth” of -13.8%.

In other words, against the backdrop of a global chip shortage, the best of the manufacturing industry has sold far less in raw quantities of this precious “commodity.”

Dips In Chips

While I have worked tirelessly (such a hero) to rebalance my portfolio to more fully reflect the need to be less exposed to this “painful” trade and more exposed to what works in what I see as the future environment – Materials, Industrials, and moving stuff – no one dances without the chips.

Dips in tokens more than any other group (again, in my opinion) are opportunities. Having said that, no promise on the best opportunity a given industry might present in the future, but I’m not selling my tokens. At least not the ones whose CEOs I know can clean.

Oh one more thing

I’m really running out of time. I had so much more to write today. I’m sorry, but I already start working at 3:30 am every day. I wouldn’t be able to watch baseball at night if I started earlier. Priorities. That said, Exxon Mobil (XOM) is flirting with a breakout.

You either watch this breakout produced by a mug model with a $ 62.50 swivel, or you watch a mug about to add a handle. I think it’s okay to buy this name where the 21-day EMA and the 50-day SMA work together.

You do what you want. That’s what I do. Sarge.

Economy (All Eastern hours)

6:00 AM – NFIB Small Business Optimism Index (April): Expected 100.1, last 98.2.

08:55 – Redbook (weekly): Last 14.2% y / y.

10:00 – JOLTs job offers (March): Last 7.367M.

4:30 p.m. – API oil inventories (weekly): Last -7.7M.

The Fed (All Eastern hours)

10:30 am – Speaker: new York Fed Pres. John Williams.

12h00 – Speaker: Governor of the Reserve Council Lael Brainard.

1:00 p.m. – Speaker: San Francisco Fed Pres. Mary Daly.

1:15 p.m. – Speaker: Atlanta Fed Pres. Raphael Bostic.

2:00 p.m. – Speaker: Philadelphia cream Fed Pres. Patrick Harker.

Daily Income Highlights (Consensual BPA expectations)

Before the Open: (PLTR) (0.04)

After closing: (EA) (1.05), (LMND) (-1.25), (VZIO) (-0.06)

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