The Big Tech cavalry to the rescue!

The Big Tech cavalry to the rescue!

The Big tech cavalry comes to the rescue of the circled wagons of the non-tech! Strong Q1 results from several of the FAANG Gang has kept the indexes aloft. And until Thursday, the Dow/Russell 2000 and the Nasdaq were going their separate ways. It has been an incredible market of two parts – the Nasdaq dominated by the inflation-insensitive Big Tech, and the also-rans dominated by the cost-of-living non-tech companies.

I have mentioned before that in recent days, the rallies in the S&P 500 were due to only six-eight Big Tech issues. The other 492 are all in bear trends for the year! I find that amazing and in a currently well-worn term – unprecedented. And it has been the banks that have suffered the most as concerns over banking safety have been raised by the recent demise of a few major regional US banks.

One measure of complacency of prospects for more banking turmoil is the growing belief that banks don’t matter for the economy much any more.

Back in 2007/2008 the banks were seen as ‘too big to fail’ but not any more. Then, it was the biggest banks in the firing line but not so today, is the current thinking. The big banks are said to be stronger (more liquid) than in 2007 and it is only the regionals that are in trouble.

But take a look at this revealing chart. The MOVE Index is the Fear Index equivalent for the bonds

The fear surge last month was triggered by the sudden SVB difficulties that came out of nowhere (don’t they all. at first?). It all went quiet after the Fed intervened and has dropped back to a Fib 62% retrace of the surge.

And even with another bank – First Republic – getting into difficulties, bond investors see no problem contagion will take hold and says Crisis? What crisis?

But all banks big and small possess huge holdings of commercial property loans. The median commercial holdings of the US banks’ assets is 40%. That is a very big number and that means only a small rise in defaults would scare the living daylights out of depositors.

Thus, large bank runs are a distinct possibility which would help collapse the whole deck of cards. Recall I used the same imagery in 2007.

But I believe bond investors are living in a dream world where there will be another sudden re-awakening. The elephant in the bond room is the collapsing commercial property market where some price indexes are down 15% so far this year alone.

Imagine – if house prices were down 15% this year pandemonium would be rife.

But this commercial property weakness is putting enormous pressure on commercial property bonds that will increasingly be unable to pay the promised interest and will set off a string of defaults. Banks are already increasing their loan loss provisions.

And when this news hits the stock market, bank shares will fall further, as will the general market as investors get shaken out of their current complacent mood.

But hold on – here is a major Bank ETF

The Elliott waves appear textbook with five up and the current three down to the Fib 62% which has now closed the gap. Thus, it is at a critical juncture and only a sharp move lower – as more banking problems emerge? – would change the bullish picture implied by my Elliott wave labels. Hmm.

While some are expecting the other shoe to drop, Big Tech investors are completely oblivious to all of those worries and filling their boots with the shares of any company associated with AI – especially those with ‘AI’ in their name such as t his one.

Despite trading at a fraction of its IPO, investors have been trying to push the price up this is year but has fallen back in recent days.

This reminds me of the period when blockchain was the next Big Thing propelled by the surge in interest in Bitcoin. I recall when a US retail store chain changed its fairly ordinary name to include ‘Blockchain’, the Reddit crowd jumped all over it and sent the shares to the moon. When they realised that they they had ‘invested’ in a corner store with earnings only in the thousands of dollars, carnage inevitably ensured.

I maintain my view that the share indexes will remain aloft into May and then reverse strongly into June.



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Sugar got even sweeter last week

One of my most successful campaigns in recent weeks has been in Sugar. In previous blogs, I laid out my case for buying the Tropicals (Coffee, Cocoa and Sugar) with particular focus on the sweet stuff.

In my post of 8 April, I posted this chart:

We had actually started the campaign much earlier but this most recent weekly chart was a clear signal the trend was up and was being supported by reports of crop difficulties in several cane growing regions.

Earlier in the year, I had posted my upside targets:

and last week, my second target was hit. That was a very profitable campaign. I wish they all were like this one!

We have taken all profits but is there more to come, or is this the end of what was in reality a bear market rally? Here is one possible option on the monthly

The almost vertical rise in my wave ‘C?’ took it to the Fib 62% retrace of the entire move off the 2011 highs. That should be significant. And the RSI is screaming ‘Extreme Overbought’ that shows up on all time scales down to the 1-hr. Yes, this baby is overbought. And Mr Prudence told me to grab the profits.

If this roadmap is correct, a strong impulsive down will kick off. And if I see signs of a top, I will look to start a shorting campaign.

Nasdaq surges leaving the others in the dust

All eyes were on the Big Tech earnings which were enough to stir the bullish juices of investors. But that is now history – can these great earnings be maintained for Q2 in the face of headwinds from higher interest rates?

Here is the daily showing my long-standing ‘line in the sand’. My ideal roadmap call for a move up to kiss this line and then a Scalded Cat Bounce down. That would set the rally high just below the wave 4 top at the13,740 max upside. One factor suggesting this is the very large momentum weakening into the current rally.

Despite the stellar FAANG Gang performance, many of the other tech names comprising the Nasdaq are faltering, leaving only the generals to lead the uphill charge.

The Fed’s FOMC meeting occurs on Wednesday and all eyes will be on their guidance ahead. Could this be the defining moment for stock market investors to wake up? We shall see.

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