2020 – Week 21 Recap

NASDAQ Divergence

 

Recap

  • China drops its GDP growth target this week giving priority to stabilize employment.
  • Various quarantine requirements introduced with spot checks and fines as in the case of the UK.  This is in the brink of other EU countries opening their borders in June.
  • EU plans to unveil its ‘green deal’ aiming for zero carbon emissions by 2050.
  • FOMC voted to maintain interest rates until recovery in sight.
 

Our View

This week we see the continuation of the major trend in the markets, which is a shift from traditional businesses to those which are more online.  With major brick and mortar companies such as JCPenney and Hertz folding, we see companies such as Amazon (Fig. 1) doing exceedingly well in their business sector.  In fact the tech sector in general, such as the NASDAQ (Fig. 2) is doing better than the broader stock indices such as the DOW and S&P.  

NASDAQ & Technology

This shift in consumer behaviour is most likely here to stay for the short term at least.  The shift during the Great Depression was Agricultural to Industrial, and now we see Offline to Online.
Fig. 1 - 2020-05-23 Amazon Weekly (Source: TradingView.com)

Fig. 1 – 2020-05-23 Amazon Weekly (Source: TradingView.com)

 
Fig. 2 - 2020-05-23 NASDAQ Rally & Resistance Area (Source: TradingView.com)

Fig. 2 – 2020-05-23 NASDAQ Rally & Resistance Area (Source: TradingView.com)

  Although we exited the Technology position early last week, we feel this is close enough to a near term top (grey area) indicated on the NASDAQ.  Modelling suggests a retracement of this sector from June before heading higher which we will look to capture again. There are a few things working in the background but our primary focus is on the 2020 US election as well as because there is a divergence between the NASDAQ and the other majors, we believe that the rally in the NASDAQ will not last that long in the short term.  

Russia

A move higher of about 6% this week in Russia ETF RSX (Fig. 3) was well-received for our position.  Though still volatile and weak, there are indications that gasoline demand is rising with some airlines planning a rebound at least for European travel soon. With oil, it is also affected by US-China tensions escalating and associated fuel demand due to the COVID-19 crisis.  For now, we will continue to monitor this sector and Light Crude Oil Futures have rallied 12% on the weekly (Fig. 4).
Fig. 3 - 2020-05-23 Russia Index RSX Weekly (Source: TradingView.com)

Fig. 3 – 2020-05-23 Russia Index RSX Weekly (Source: TradingView.com)

 
Fig. 4 - 2020-05-23 Light Crude Oil Futures rally (Source: TradingView.com)

Fig. 4 – 2020-05-23 Light Crude Oil Futures rally (Source: TradingView.com)

 

Hang Seng Index falls -5.5%

Closer to home, the Hang Seng Index saw one of its largest one-day drop in recent history.  On Friday, May 22, it fell -5.5% (Fig. 5) due to news that China will be voting to implement national security legislation.  We currently do not have exposure to the HK market, only A-shares and the Chinese market.
Fig. 5 - 2020-03-23 Hang Seng Index falls 5.5% (Source TradingView.com)

Fig. 5 – 2020-03-23 Hang Seng Index falls 5.5% (Source TradingView.com)

Conclusion

We continue to be patient with our positions as well as in analyzing the market in general. From increasing US-China trade tensions to agendas to do overthrow Trump in the upcoming US elections to Bill Gates and the green movement’s agenda with major hedge funds, these are difficult times to accurately predict trends that can be there for profit. We need to be even more cautious moving into June as we see turning points and technical resistance levels developing for the month ahead. We continue to work diligently in reviewing the market analysis every day.    

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