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We'll know this week if the low is in
Capitulation seems to be taking hold in many tech stocks, specifically in the SaaS/Cloud space. The market has been trained to look to tech, specifically FAANGs, as the sector to lead. However, what is likely happening is a seismic rotation into new leaders, as fear and a dwindling growth outlook has money fleeing to safety and quality. We dive into what this means for tech in the coming bounce?
FAANGs are not Leading this Market Lower
Panic selling commenced in the broad market after the FED's recent attempt to stop a rally. Interestingly, the bond market doesn't seem to buy it, nor do many key value stocks in the U.S. The divergences we have been discussing for weeks are only growing. These divergences are not what you see prior to a deep drop in the market, instead they tend to signal a trend reversal that is developing. The good news about yesterday is that if the market can move back above the 3912 level, which was the high going into speach, then we have a clear signal that inflation and rate hikes are fully being discounted as we setup for a larger rally.
Meta Stock: The rising expenses and Capex are worrying
Meta shares nosedived 25% after the company's recent Q3 results. Meta's expenses are rising and the company is seeing softer revenue growth and softer margins. The slowing advertisement revenue has forced the company to look for new investments and the market is doubting when or if these investments will pay off.
Netflix Stock Will Be A FAANG Again
Netflix lost it’s status as a FAANG when the stock fell from a $300 billion market cap to a $100 billion market cap this year. My firm entered Netflix in August as we fully expect the stock to become a FAANG again due to its revenue potential from ads and improving cash profile.
This Bear Market Rally has much Further to Go
Markets do not top together, nor do they bottom together. For this reason, identifying the leading markets can help you stay ahead of the trend. We continue to see evidence of these divergences, which is suggesting a meaningful low is being put in. While everyone is focused on Big Tech making new lows, they are failing to see that new leadership is pushing the market forward. Bellow, we look at the mounting evidence that this rally could extend farther than most think, and also provide the levels to watch so that you can manage risk just in case the bear market continues to new lows.
Divergences Point Toward Market Moving Higher (Technical Analysis)
Divergences are important to track. There is always a leading market that can provide advanced warning that a top or bottom is ahead. For example, from the COVID low in 2020 through February of 2021, all major global indexes were moving up together. When you see an all-encompassing trend, it tends to be a powerful one, much like we saw into early 2021.
Sentiment and Divergences are Pointing Up
The stock market continues to power higher on the heels of bad news. We are up over 6% since the CPI reading signaled that inflation is stickier than hoped. The last time we saw the broad market ignore bad news was in mid-June, just before the S&P 500 pushed up over 18% in less than 2 months. However, unlike the mid-June rally, sentiment today is at historic levels and it's being accompanied by multiple markets already starting a new uptrend before the S&P 500. In this week’s video, we take a deeper look at the markets that are not following the S&P 500 to new lows and also show the critical levels that will define whether we retest the August high or break down to new lows.
Big Tech Continues To Buy Semiconductors At Record Levels In 2022
Despite an enormous increase in Big Tech capex primarily driven by data centers, this line item does not get the attention it deserves in terms of follow-through to the semiconductor industry. Below, we look at FY2022 budgets to draw the conclusion that H2 spending on data center chips is equal if not greater than the first half of 2022.
