Inexplicable Recovery of Tech Stocks

Expect the position reduction to run its course and the long-term trend to resume

Stocks remain weak with tech stocks bearing the brunt of the selling, but as always, the recovery from the lows was sudden and inexplicable. Expect the position reduction to run its course and the long-term trend to resume. Precious metals continue to outperform and there is no reason to get off the express train. USD weakness persist despite the weak sentiment, can you imagine what would happen if stocks should start to trade better?

WHAT HAPPENED YESTERDAY

As of New York Close 24 Jul 2020,

MARKET MOVEMENTS

Safe haven JPY rose on Friday to its highest in more than four-months, while the Dollar slumped to near a two-year low, as risk appetite waned due to a host of concerns including a continued rise in virus cases, a delay in the U.S. stimulus package bill and simmering U.S.-China tensions. The Dollar posted its biggest weekly decline (-1.57%) in almost four months against a basket of currencies and also saw its largest weekly percentage loss against a surging EUR (-2.00%) since late March. AUD held on well despite the weak risk sentiment. It fell lower to test .7060–70 support but rebounded strongly when Nasdaq recovered from the lows (of — 2.33%) during the New York trading session.
Intel (INTC 50.59, -9.81, -16.2%) did very little recovering, with shares falling 16% after the company announced a six-month delay in its next-generation 7nm chip technology. While disappointing for Intel investors, the news was welcomed by investors of Advanced Micro Devices (AMD 69.40, +9.83, +16.5%).
Other negative factors included China ordering the U.S. to close its consulate in Chengdu in response to the U.S. ordering China to close its consulate in Houston and a delay in the Republican coronavirus relief bill until next week.
In other corporate news, Goldman Sachs (GS 201.47, -1.66, -0.8%) settled its 1MDB case for $3.9 billion, Verizon (VZ 56.85, +1.00, +1.8%) beat top and bottom-line estimates, American Express (AXP 95.33, -1.34, -1.4%) reported mixed quarterly results, and Walt Disney (DIS 117.61, -0.51, -0.4%) reportedly delayed several blockbuster movies by a year.

HEADLINES:

REP, DEMS CAN MOVE QUICKLY ON U.S. VIRUS RELIEF BILL, MNUCHIN SAYS

Trump’s fellow Republicans in the Senate are set to unveil a $1 trillion U.S. virus relief bill on Monday that includes reduced federal unemployment benefits, with Treasury Secretary Steve Mnuchin saying he believes they can work with Democrats to move quickly on the legislation.

“The bill will be introduced Monday and we’re prepared to act quickly. This is all about kids and jobs. This is our focus, and we want to make sure something gets passed quickly so that we deal with the unemployment and all the other issues,” Mnuchin told the “Fox News Sunday” program.

The most pressing issues are the soon-to-expire enhanced unemployment benefits — currently $600 a week — and liability protections from coronavirus-related lawsuits, Mnuchin said.

“We can move very quickly with the Democrats on these issues. We’ve moved quickly before, and I see no reason why we can’t move quickly again,” Mnuchin said. “And if there are issues that take longer, we’ll deal with those as well.”

Thematic Context: “The Fed and government is doing whatever it takes to get money into the hands of businesses, even making adjustments to ensure that happens. One cannot expect a more accommodative policy or question the absolute resolve to bail out the economy in the bid to save jobs, quell social unrest and anxiety. The clear intentions project a reliable trajectory that the markets will be supported and the incessant money printing is not stopping in the near future, both are positive for the Nasdaq, Hard Assets (Gold & Silver) and the Risk Currencies (AUD & NZD).” — 7th July 2020

AUSTRALIA REPORTS JUMP IN DAILY NEW CASES, RECORD DEATHS

Australia’s second-most populous state, Victoria, recorded 459 cases of the new coronavirus, the second-highest daily total and up from 357 cases the previous day, the state’s leader said on Sunday.

Premier Daniel Andrews also told a press briefing that Victoria had reported 10 COVID-19 deaths in the past 24 hours, Australia’s highest ever daily number. Australia has avoided the worst of the coronavirus crisis seen in other countries, but authorities are struggling to contain an outbreak in Victoria. It has recorded more than 14,400 cases so far.

UK DEFENCE SECRETARY TO BOOST ABILITY TO HANDLE SPACE THREAT FROM RUSSIA, CHINA

Britain will boost its ability to handle threats posed by Russia and China in space as part of a foreign, security and defence policy review being conducted by the UK government, Defence Secretary Ben Wallace said late on Saturday.

On Thursday, Britain said it was concerned about a Russian satellite test which involved the launch of a projectile with the “characteristics of a weapon”. “This week we have been reminded of the threat Russia poses to our national security with the provocative test of a weapon-like projectile from a satellite threatening the peaceful use of space”, Wallace wrote in The Sunday Telegraph newspaper, adding that China also posed a threat.

Tensions between Britain and Russia have been high in recent weeks, as Britain has targeted Russians with new sanctions, accused Russian actors of trying to meddle in last year’s election and said Moscow has tried to hack into vaccine research.

Separately, Britain announced on Monday it would suspend its extradition treaty with Hong Kong in an escalation of a dispute with China over its introduction of a national security law for the former British colony.

DAY AHEAD

ANTITRUST Hearing

The CEOs of Facebook, Amazon.com Inc, Alphabet’s Google and Apple, are set to speak before the House Judiciary Committee’s antitrust panel later today. They will present their testimonies virtually, according to sources familiar with their plans. The panel is questioning the companies as part of its probe into whether they actively work to harm and eliminate smaller rivals, while not always making the best choices for their customers. The Nasdaq was trading weak last week partly because of fear of this probe. Any positive development will trigger a rally.

2. AUD remains supported despite the weakness in the stock markets towards the end of the week. Long term uptrend remains intact.

3. Gold is now a whisker from its all-time highs of 1921. Expect that to break and induce all the bystanders to give in to their FOMO. Silver and Gold will continue to outperform in the days and weeks ahead.