Big tech continue to soar

While the unemployment benefits scheme expired on 31 July a solution has still not been agreed upon by the Republicans and Democrats. While they agree on some points, they don’t agree on all. In a nutshell the Republicans don’t want to incentivize those who are staying home and not working while the Democrats wants to continue the same program. One way or the other, it should get resolved soon and if not, a presidential executive order could solve it.

On Friday blow out results from the three major tech companies sent the markets soaring but it did not break into new grounds.

Amazon was amazing. It just looks like the COVID situation was tailor made for the tech companies’ revenues to grow, especially for Amazon.

If you are a regular reader of this report you may recall that at the beginning of the pandemic, we recommend four stocks to our readers namely Amazon, Salesforce, DocuSign and Facebook. Among the four we singled out Amazon. All four so far has done phenomenally well.

The decline in GDP for the second quarter came in lower than expected. It was reported at down 32.9 % while the consensus view was around 35%. The Fed model was even projecting a deeper decline of 54 %.

But in reality, what it has done is that it wiped out five years of US economic growth in just three months. That’s a bitter pill to swallow. The decline between April and June brought the US GDP back to levels last seen in 2015. While the economy fell into an “Alice in Wonderland” pit leading economists are dashing hopes of an equally swift recovery.

While US- China relationships slide into much muddy waters cross border corporate deals are and will take different turns with many litigation issues wherever both countries financial interests are involved.

Equities

The markets gapped higher on Friday and the blockbuster results from the major tech companies caused the markets to close higher.

The breadth indicators were significantly negative as there were more declining shares than advancing shares which is normally a sign of reversal in trend.

Friday’s up move was a clear sign of the influence that the mega tech stocks have on the major indexes. The Dow lagged the S&P 500 and the NASDAQ. Though the S&P 500 was strong it stayed below its high of 3280 on Jul 23. Only a rally above 3280 worries us that it can go on to fill the gap that exists between Feb 21 to Feb 24 from 3260 to 3338.

Bonds

It is more likely the bond markets will rally higher to meet the high of 183^02 the high of Apr 21. Once the structure is complete, we should look for a low risk strategy. A close below 179^30 will force us to rethink of the move up for the Apr 21 high.

Euro

The Euro slightly exceeded our projected price window and fell back sharply. The Euro is most overbought in 9 years at a daily sentiment index of over 90%. Will try to give a more detailed analysis in the coming days.

Gold

Gold is at a critical point with daily sentiment index rising to 91% for three consecutive days last week. A move below 1915 will conclude that the upside pressure is over.