NDX/SPX and the healthy reason why tech is overperforming

2020년 7월 10일

As for the late 90's tech is over performing... some say that the reason why tech are over performing is because the world will change after covid, we are moving to the cloud etc. I can't more than agree with this.
However, the same was true in the late 90's, the internet was a revolution... it didn't prevent the dot com bubble.
At that time some companies had 0 revenue and were valued billions (well NIKOLA??? does it ring a bell??)

So what happens at the end of a cycle is that companies start to under perform, to increase keep earnings alive they start to fire people (well yes it doesn't make sense since these consumers are the ones bringing them money), this lead to actual bankruptcies of the smaller companies and then bigger ones... which leads to more people loosing their jobs.
But between step 1 and 2 (bankruptcies) tech seems as the safe bet because at this point in time these guys are not YET affected the reason is very simple : it's easier to fire someone rather than pulling the plug on your IT system (which ultimately happens when you go bankrupt).

This lead to a double problem:
1) overvaluation of tech stock ( a bubble)
2) tech companies actually feel the impact much later in the cycle (and that's when the tech bubble explode).

I wouldn't pretend to be an expert or experienced analyst... but I would say that a RSI of 90+ is pretty amazing...
It's also pretty cool to see that we're at the same levels as in 2000 (Ratio / RSI).
We can expect that the NDX will catch up with the real economy at some point...


PS: if I can add a point on the COVID things. About the rationale that things are going great because there are not so many death at the moment... well remember how it happened in Italy 1) young people with more interactions make a solid base of sick but not so sick people at that point in time the government is not so worried so they let it spread 2) slowly it spreads to more vulnerable people with less interactions ... yes this take times 3) the politicians realize that you cannot handle so many sick people in hospitals and that having thousands of daily death is not so cool anymore 4) you close again for 3 months... just wait for the 5K+ daily death in the US and you'll see how the market reacts.

Cheers have a nice week end

2020년 7월 10일

노트

nice weelky RSI divergence forming BTW