Trade War Takes Its Toll on Tech Stocks

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Trade War Takes Its Toll on Tech Stocks

Major Moves

The trade war between the United States and China erupted last Friday when President Trump placed Huawei Technologies on a trade blacklist, and the American stock market is still reeling from the fallout.

The technology sector, which has been the best-performing sector on Wall Street for the most of 2019, led the S&P 500 down today after Alphabet Inc. (GOOGL) – Google’s parent company – and Qualcomm Incorporated (QCOM) moved to restrict Huawei’s access to their technology.

This is concerning for traders since China is a major growth market for most technology firms, and traders are now worried about slowing revenue and profit growth rates. Traders will not continue to pay premium prices for these technological firms’ stocks unless they can show that they will continue to produce great growth.

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You can see by the sea of red on the S&P 500 heatmap below just how devastating this news has been to the technology sector today. The bigger the loss for the day, the brighter the red becomes within the individual stock’s block.

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

S&P 500

On Friday, I discussed the tombstone doji that had formed on the S&P 500, emphasizing that it needed to be confirmed by a bearish candlestick. Today’s bearish move verified the candlestick from Friday.

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Interestingly, the S&P 500 did not fall far enough to test the 2,813.46 support level that we have been monitoring for the last week or two. Instead, the index rose from the day’s lows to end at 2,840.23, barely below where it began the day.

For the S&P 500, this is a critical consolidation range. If the index can hold above support in the near term, it has a great chance of continuing its longer-term advance into the summer.

If the index falls below support, it will create a bearish head and shoulders pattern, with the left shoulder developing in late March, the head forming in late April, and the right shoulder forming in mid-May. A negative move like that might take the index lower this summer, challenging longer-term support around 2,630.

We’ll have to watch what occurs over the next two weeks.

Read more:

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Risk Indicators – Rare Earth and Strategic Metals

Several commodities have already been caught in the crossfire of the trade war between the United States and China; just ask peanut growers in the South or soybean farmers in the Midwest.

Now, rare earth metals may be the next target as China attempts to put further pressure on the US in the wake of President Trump’s executive decision last Friday to place Huawei Technologies on a trade blacklist. Although Beijing has not made any public announcements, traders are concerned that President Xi Jinping may suspend shipments of rare earth and strategic metals to the United States, such as cerium, manganese, titanium, and tungsten.

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This is a significant concern for the technology industry since these metals are crucial components for everything from jet engines and hybrid automobiles to flat-screen TVs and cell phones, and the US depends on Chinese shipments for almost 80% of its rare earth and strategic metals.

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

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

REMX rose 5.98% today and is expected to rise further if Beijing formally declares an export embargo. If this occurs, expect the technology sector to take a knock on Wall Street.

Read more:

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Bottom Line – Important Inflection Point

Some times in an uptrend’s life seem to be more significant than others. This seems to be one of such instances.

The S&P 500 has retreated from an all-time high, found support, then rebounded higher. Unfortunately, global circumstances have stymied the rebound. If the rebound lasts, it might be a bullish summer. If it can’t, bears will take advantage of seasonal low volume to drive prices down.

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