Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 12 July 2017 at 13:00 GMT

A toppy time for tech... and for Trump?

Managing Partner / Spotlight Group
United Kingdom
  • Technology stocks have enjoyed a long bull run 
  • Analysis indicates a potential top in the market 
  • Trump troubles poised to strike complacent markets
Donald Trump, Jr.
Donald Trump Jr's Russian missteps have created a new scandal around his father's administration. For how long markets shrug these off? Photo: Shutterstock

By Stephen Pope

The chart below shows the long-term trend in the NASDAQ over the past 10 years. What one will notice is that we are approaching the 10-year anniversary of when the index suffered a severe correction. 

This is marked by the red circle and the details are as follows:

  • October 1, 2007: 2853.62
  • February 2, 2009: 1359.90
  • Change over 16 months: minus 52.35%
Source:, NASDAQ

Back then, the weekly moving average crossed below the other significant moving averages and was confined to lie at the bottom of the metric cluster for 16 months.

Therefore, given the NASDAQ has enjoyed a seven-year bull run,  one might assume that all the moving averages would be trending higher. However, closer examination reveals that this is not quite the case.
Source:, Spotlight Ideas

The chart and inset table above reveal that the weekly moving average has, as at the end of last week, fallen to a level below all the key moving averages except the 200-day. Certainly, the condition of the moving averages flipping over from bullish (upward trajectory) to bearish (downwards) except the 200-day measure is clear to see. 

Add to that the observation that the 21-day metric is lower than that for the 50-day, and it seems justified to ask a whether the market is overstretched.

To add further justification to this concern, of the 11 sectors we follow, technology ranks 7th of 11 with a return on a year-to-date basis of 5.44%. 

The yellow inset chart shows that our technology index has been in decline since March of this year, shedding 7.1% since that peak.
Source: Spotlight Indices

Given that the weekly moving average has not crashed to the bottom of the cluster as in 2007/8, it is too early to write off the prospect of future gains. I say this as the current moving average cluster, on an hourly basis, is similar to that seen in late June 2013 when the NASDAQ gained an additional 53% before hitting an intermediate-term peak on July 20, 2015. 

That said, I am minded to err on the side of caution.

Why take any money out of the NASDAQ?

I do not think we can forever ignore the daily difficulties that appear to engulf the Trump administration and delay much-demanded economic progress.

Donald Trump, Jr. apparently didn’t think it important to mention to his father that the Russians had offered information that was damaging to his White House rival Hillary Clinton. 

Meanwhile, Trump's son-in-law and senior adviser, Jared Kushner, tried and failed to obtain a $500 million loan from a key member of the Qatari royal family before pushing the president to adopt a hard line against the Persian Gulf nation. His ire was stirred after the Qataris pulled out of a property deal on his 666 Fifth Avenue building in New York t could push Kushner toward bankruptcy.

Trump has claimed that he had nothing to do with any of these matters... but he would say that, wouldn’t he?

These episodes are just the latest reason why there is a mounting risk of political instability in the US and as such, the level of uncertainty is rising as finding any consensus is proving ever more elusive.

All the while, essential initiatives such as healthcare reform, tax reform and reductions, fiscal stimulus and the other expansionary programmes that generated the Trump reflation rally are now beginning to look increasingly unachievable. Too many Washington career folk are thinking of their own political futures in 2018.

In the past, markets have shrugged such things off, or even tacitly treated it as the Trump White House's way of doing business. This, however, is not good enough and eventually the inflation of tech asset prices will not be able to deny the political reality even if the markets and DC gridlock prevents the Yellen Federal Reserve from taking any extraordinary action. 

Certainly, one should be cautious ahead of the Fed chair’s testimony today as normalisation appears to be the Fed’s current playbook.

Federal Reserve
The Fed, the Donald, the dollar... Photo: Shutterstock

Some may say I am being too timid...

Concern over the high valuation of tech stocks has been dismissed in some quarters because it is argued that now tech companies are earning a lot more money than in 2007/8. Another argument is that the level of technology adoption is now spread more widely across other industries. This has radically reshaped business models in fundamental ways, and as such there is wider and deeper technology demand, so pushing tech stocks even higher.

As technology becomes cheaper and more readily available, it’s become a feature of daily life in parts of the emerging/developing world that were unable to participate in the last boom. This will, of course, expand the available market for tech firms.

My concern is that the trade in technology stocks is overcrowded. As such, I will not be too worried about taking half of my exposure to the NASDAQ off the table  ahead of the summer.

The gains over the past few years have been so extreme that there could be more sudden price swings in store.

— Edited by Michael McKenna

Stephen Pope is managing partner at Spotlight Ideas
m7010306 m7010306
Interesting how NQ rallies once again when there's an article about it.
Stephen Pope Stephen Pope
Yes...I see it is up by 54 points or so...and I appreciate there are arguments for it to continue tracking higher and at times it seems as though equities will shrug off all and every piece of troubling news...but I think it was appropriate to highlight my concerns...clients can act on it as they see fit.
bhushan bhushan
Hi Steve,Gold reached $1210(met your expection).Now whether it is buy or wait... Please give your views.Regards
Stephen Pope Stephen Pope
Dear Bhushan,

Thank you for your question.

My trade for gold was stopped out as the stop loss was activated at 1217. There has been a small bounce, as gold prices edged higher in European trade on Thursday, nearing a one-week high following Yellen's congressional testimony to gradually raise interest rates. However, all the techncials from one minute to one month are either Strong Sell or Sell.

The initial reaction appears to be on the basis that increases in the Fed Funds rate will be gradual, however, I am not convinced the impact of paring back the balance has been fully factored in yet, It is an extra dimension of monetary normalisation and as such it will be a support to the Dollar and place pressure on gold.
bhushan bhushan
Thanks Steve


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