Trade War Takes Its Toll on Tech Stocks

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Trade War Takes Its Toll on Tech Stocks

Major Moves

When President Trump formally added Huawei Technologies to a trade blacklist last Friday, the trade conflict between the United States and China heated up. The U.S. stock market is still suffering the impact of this action today.

The S&P 500 was led down today by the technology sector, which has been the best-performing industry on Wall Street for the most of 2019 due to actions taken by Qualcomm and Alphabet Inc. (GOOGL), the parent company of Google, to deny Huawei access to their respective technologies.

Since China is a significant growth market for the majority of technology businesses, this is concerning for traders who are now quite worried about slowing revenue and profit growth rates. Traders won’t continue to pay premium prices for these technological firms’ stocks if they can’t show that they will continue to produce tremendous growth.

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How catastrophic this news has been for the IT sector today is evident from the sea of red on the S&P 500 heatmap below. The block of red for each individual stock becomes brighter the greater the loss for the day.

Keysight Technologies, Inc. (KEYS), Western Digital Corporation (WDC), and Activision Blizzard, Inc. (ATVI), which were down 8.92%, 6%, and 5.99% respectively, were today’s top losses in the technology sector.

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S&P 500

I discussed the tombstone doji that had developed on the S&P 500 on Friday and emphasized the need for a bearish candlestick to confirm it. Well, today’s bearish move reinforced the candlestick from Friday.

It’s interesting that the S&P 500 didn’t fall far enough to threaten the 2,813.46 support level that we have been keeping an eye on for the last week or two. Instead, the index rose from its daily lows to end at 2,840.23, which is barely below where it began the day.

For the S&P 500, this consolidation range is quite important. The index has a great chance to maintain its longer-term rise into the summer if it can sustain above support in the near term.

The S&P 500 will finish a head and shoulders bearish reversal pattern, with the left shoulder developing in late March, the head forming in late April, and the right shoulder forming in mid-May, if the index breaks below support. Such a negative trend would cause the index to decline and this summer test longer-term support around 2,630.

The following two weeks will be watched to see what transpires.

Read more:

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Risk Indicators – Rare Earth and Strategic Metals

Just ask peanut producers in the South and soybean farmers in the Midwest how many commodities have already found themselves caught in the crossfire of the US-China trade war.

Now that President Trump has issued an executive order placing Huawei Technologies on a trade blacklist, rare earth metals may be the next thing China pressures the United States to do. Beijing hasn’t made any specific announcements yet, but traders are concerned that President Xi Jinping may stop supplies of rare earth and critical metals to the United States, including cerium, manganese, titanium, and tungsten.

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The United States imports around 80% of its rare earth and strategic metals from China, which is a big concern for the technology industry since these metals are essential parts for everything from jet engines and hybrid automobiles to flat-screen TVs and cell phones.

Watching the VanEck Vectors Rare Earth/Strategic Metals ETF will show you how worried traders are that the price of these metals will rise in the near future (REMX).

China Northern Rare Earth Group High-Te, China Molybdenum Co Ltd, and Xiamen Tungsten Co Ltd, which are listed on Chinese markets, as well as Luka Resources Ltd, Lynas Corp Ltd, and Pilbara Minerals Ltd, which are listed in Australia, are among the rare earth mining firms that REMX has shares of. Tronox Holdings PLC is the only publicly traded business among REMX’s top 20 holdings (TROX).

Today, REMX surged 5.98% higher, and if Beijing formally declares an export restriction, the stock is certain to rise further. Watch for a decline in the technology sector on Wall Street if that takes place.

Read more:

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Bottom Line – Important Inflection Point

An upswing seems to have some turning points that are more significant than others. It seems that this is one of those instances.

The S&P 500 dropped from a record high, found support, and then rose. Geopolitical considerations have unfortunately impeded the rebound. It may be a bullish summer if the rebound can persist. If it can’t, be on the lookout for bears who will use the seasonal low volume to drive prices down.

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