{"id":165167,"date":"2020-02-18T10:58:04","date_gmt":"2020-02-18T15:58:04","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=165167"},"modified":"2020-02-18T10:42:30","modified_gmt":"2020-02-18T15:42:30","slug":"is-the-technology-sector-setting-up-for-a-crash-part-ii","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/02\/is-the-technology-sector-setting-up-for-a-crash-part-ii\/","title":{"rendered":"Is The Technology Sector Setting Up For A Crash? Part II"},"content":{"rendered":"
February 18, 2020<\/div>
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By TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

In the first section of this article, we highlighted three key components\/charts illustrating why the \u201crally to the peak\u201d is very likely a result of a continued Capital Shift away from risk and into the US stock market as an attempt to avoid foreign market growth concerns.\u00a0 This method of pouring capital into the US stock market is a process that is driving incredible asset rallies in the US technology sector.\u00a0 Already the US technology sector (FANG and our Custom Technology Index charts) are up almost 15% in 2020.\u00a0 How long will it last and when will it end?<\/p>\n

Recently, China has revised the Coronavirus data with a sharp increase in infection cases \u2013 now over 40,000.\u00a0 We believe the true number of infections in China are currently well above 250,000 from video content and other data we\u2019ve researched.\u00a0 We believe economic data originating from China for January and February 2020 will show a dramatic 60% to 80%+ decrease in activity for many of the major cities.\u00a0 Satellite technology suggests manufacturing and consumer activity in most major Chinese cities is only a fraction of what would be considered normal \u2013 10% to 20% or normal levels.<\/p>\n

This means the manufacturing capacities in China have collapsed and that supply to the rest of the world will collapse as well.\u00a0 This means major electronics manufacturers and suppliers will suddenly quickly experience shortages and outages very shortly.\u00a0 This is why we believe the technology sector may come under severe pressure over the next 6+ months and why we believe the \u201chigh-flying\u201d technology sector may be one of the biggest sector rotations of 2020.<\/p>\n

Just how much of a \u201ccollapse\u201d are we talking about?\u00a0 How can anyone attempt to quantify the true scope of this potential \u201cblack swan\u201d event and how it may result in sector rotation?<\/p>\n

Let\u2019s start with some of the basics.\u00a0 First, the global economy has been focused on Chinese manufacturing and production of goods for more than the past 20+ years.\u00a0 Over the past 10 to 15+ years, the Chinese economy has become the central hub of manufacturing and supply for some of the largest economies on the planet.\u00a0 At this point in time, nearly every nation on the planet relies on China in some form for some essential goods that support their local economies.<\/p>

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This image showing the size and scope of global economies may highlight just how interconnected we really are.\u00a0 The Chinese economy is 15.4% of the total global economy when taken as a whole compared to other global economies.\u00a0 Yet, China supplies a very large number of these other nations with cheap goods, essential components for industry and manufacturing as well as a very large number of everyday essential items for consumers.\u00a0 So, when we attempt to consider a \u201cshut-down\u201d of the Chinese economy as they attempt to deal with this virus, try to think about how long it would take for the supply chain to dry up and then what?<\/p>\n

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Source: visualcapitalist.com<\/a><\/p>\n

Try to take a moment and think about the total scope of what we\u2019re dealing with in regards to this Corona Virus outbreak.\u00a0 Take a minute to review this graphic from InvestmentWatchBlog.com showing some of the \u201cBest\u201d US firms and how many rely on China for manufacturing\/supply of critical components or generate a large portion of their revenues from China.<\/p>\n

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Source: investmentwatchblog.com<\/a><\/p>\n

It has been over 45 days since the end of 2019.\u00a0 China knew about this virus fairly early in December 2019.\u00a0 So, in reality, it has been over 75 days since this outbreak first started. The data accumulated by Johns Hopkins CSSE started on January 20, 2020.\u00a0 Since that time, China has experienced a more than 4000% increase in new Corona Virus cases \u2013 that is only about 21 days.\u00a0 The number of infected has risen to well over 64,000 and we believe that number (reported by the Chinese government) may be only a fraction (1\/8th<\/sup> to 1\/6th) of the real infected rate.<\/p>\n

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Source: gisanddata.maps.arcgis.com<\/a><\/p>\n

Not all technology companies rely on China to supply products and software.\u00a0 Many technology companies have strong core business enterprises that are independent of Chinese manufacturing.\u00a0 Yet we continue to believe the disruption in manufacturing and supply from China will disrupt forward earnings data enough to potentially send the technology sector much lower than current levels.\u00a0 Additionally, if capital rushes out of technology in search of a more suitable opportunity \u2013 where will that capital find a new home?<\/p>\n

What happens if this \u201cshut down\u201d of the Chinese economy lasts for more than 6+ months and what happens to the world economy as a result of this virus outbreak?\u00a0 In Part III of this research article, we\u2019ll try to share our insight a bit further and attempt to show you where real opportunity exists as this rotation plays out.<\/p>\n

Join my\u00a0Swing Trading ETF Wealth Building Newsletter<\/strong>\u00a0if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.<\/p>\n

Chris Vermeulen
\nTheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

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NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.\u00a0 It is provided for educational purposes only.\u00a0 Our research team produces these research articles to share information with our followers\/readers in an effort to try to keep you well informed.\u00a0 Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.<\/em><\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By TheTechnicalTraders.com In the first section of this article, we highlighted three key components\/charts illustrating why the \u201crally to the peak\u201d is very likely a result of a continued Capital Shift away from risk and into the US stock market as an attempt to avoid foreign market growth concerns.\u00a0 This method of pouring capital into […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-165167","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165167","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=165167"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165167\/revisions"}],"predecessor-version":[{"id":165168,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165167\/revisions\/165168"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=165167"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=165167"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=165167"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}