{"id":165310,"date":"2020-02-20T15:21:12","date_gmt":"2020-02-20T20:21:12","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=165310"},"modified":"2020-02-20T15:21:12","modified_gmt":"2020-02-20T20:21:12","slug":"is-the-technology-sector-setting-up-for-a-crash-part-iv","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/02\/is-the-technology-sector-setting-up-for-a-crash-part-iv\/","title":{"rendered":"Is The Technology Sector Setting Up For A Crash? Part IV"},"content":{"rendered":"
February 20, 2020<\/div>
\r\n<\/div><\/div>

By TheTechnicalTraders\u00a0<\/u><\/a><\/strong>– As we continue to get more and more information related to the Coronavirus spreading across Asia and Europe, the one thing we really must consider is the longer-term possibility that major global economies may contract in some manner as the Chinese economy is currently doing.\u00a0 The news suggests over 700+ million people in China are quarantined.\u00a0 This is a staggering number of people \u2013 nearly double the total population of the entire United States.<\/p>\n

If the numbers presented by the Chinese are accurate, the Coronavirus has a very high infection rate, yet a moderately small mortality rate (2~3%).\u00a0 Still, if this virus continues to spread throughout the world and infects more and more people, there is a very real potential that 20 to 50 million people may be killed because of this event.\u00a0 It may become one of the biggest Black Swan events in recent history.<\/p>\n

We really won\u2019t know the total scope of the damage to the Chinese and Asian economies for another 35+ days \u2013 possibly longer.\u00a0 The information we have been able to pull from available news sources and from the Chinese press is that hundreds of millions are quarantined, the Chinese Central Bank is pouring capital into their markets in order to support their frail economy and, just recently, President Xi suggested stimulus will not be enough \u2013 austerity measure will have to be put into place to protect China from creating a massive debt-trap because of this virus.<\/p>\n

Austerity is a process of central bank planners cutting expenses, cutting expansion plans, cutting everything that is not necessary and planning for longer-term economic contraction.\u00a0 It means the Chinese are preparing for a long battle and are attempting to protect their wealth and future from an extreme collapse event.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

From an investor standpoint, FANG stocks have outperformed the S&P, NASDAQ and DOW JONES indexes by many multiples over the past 5~6 years.\u00a0 The chart below highlights the rally in the markets that originated in late 2016 (think 2016 US Presidential Election) and the fact that foreign capital poured into the US stock market chasing expected returns promised by future President Trump.<\/p>\n

It becomes very clear that the FANG stocks rallied very quickly after the elections were completed and continued to pull away from valuation levels of the S&P, NASDAQ and DOW JONES US indexes.\u00a0 How far has the FANG index rallied above the other US major indexes? At some points, the FANG index was 30~40% higher than the biggest, most mature industries within the US.\u00a0 In late 2018, everything contracted a bit \u2013 including the FANG index.<\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

As or right now, the FANG index has risen nearly 274% from October 2014.\u00a0 The S&P has risen nearly 60% over that same time.\u00a0 The NASDAQ has risen 140% and the S&P 500 Info Tech Index rose 180%.\u00a0 The reality is that capital has poured into the technology sector, FANG stocks and various other US stock market indexes chasing this incredible rally event.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

(source: https:\/\/www.theice.com\/fangplus<\/a>)<\/p>\n

This Netflix Weekly chart highlights what we believe are some of the early signs of weakness in the FANG sector.\u00a0 The sideways FLAG formation suggests NFLX has reached a peak in early 2018 and investors have shied away from pouring more capital into this symbol while the Technology index and FANG index have continued to rally over the past 8+ months.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

This Weekly Custom FANG Index chart highlights the rally that took place after October 2018 and continues to drive new highs today.\u00a0 This move on our Custom FANG index shows a very clear breakout rally taking place which is why we believe more foreign capital poured into the US markets as the US\/China trade deal continued to plague the global markets and as BREXIT and other economic issues started to weigh on economic outputs.\u00a0 What did investors do to avoid these risks?\u00a0 Pour their capital into the hot US technology sector.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

Another chart we like to review is our Custom Technology Index Weekly chart.\u00a0 This chart shows a similar pattern to the FANG chart above, yet it presents a very clear picture of the excessive price rally and rotation that has taken place over the past 5+ months.\u00a0 The real risk with this trend is that investors may start to believe \u201cit will go on forever\u201d and \u201cthere is no risk in these trades\u201d.\u00a0 There is a very high degree of risk in these trades.\u00a0 Once the bubble bursts, the downside move may become very violent and shocking.<\/p>\n

\n
\"\"<\/figure>\n<\/div>\n

A reversion event, bubble burst event, in the technology sector as a result of the economic collapse in China and throughout other areas of the world may break this rally in the technology sector at some point and may push investors to re-evaluate their trading plans.\u00a0 Until investors understand the risks setting up because of the Coronavirus and the potential for a 20%, 30%, even 40% decrease in economic activity and consumer spending may finally push global investors to really think about the true valuations within the FANG\/Technology sector.<\/p>\n

We writing this article to alert you to the very real fact that \u201cwhat goes up \u2013 must come down\u201d at some point.\u00a0 Pay attention to how this plays out and what may cause global investors to suddenly change their opinion of the Technology sector.\u00a0\u00a0 A pullback in this sector may result in a -40% to -50% price reversion.<\/p>\n

We believe the economic collapse and humanitarian crisis that is unfolding in China may be enough to put a massive dent in future expectations for 2020 and 2021.\u00a0 You simply can\u2019t have a major global economic collapse in this manner without having some type of cross-over event.\u00a0 As we learned in 2008-09 with the US credit crisis \u2013 when a major economy collapses its assets and financial markets, the ripples spread across the globe.\u00a0 China may become the next financial crisis event for the new decade.<\/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<\/p>\n

TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

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

By TheTechnicalTraders\u00a0– As we continue to get more and more information related to the Coronavirus spreading across Asia and Europe, the one thing we really must consider is the longer-term possibility that major global economies may contract in some manner as the Chinese economy is currently doing.\u00a0 The news suggests over 700+ million people in […]<\/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-165310","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165310","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=165310"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165310\/revisions"}],"predecessor-version":[{"id":165311,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/165310\/revisions\/165311"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=165310"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=165310"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=165310"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}