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Video / 04 July 2017 at 7:51 GMT

From the Floor: Nasdaq on the retreat — #SaxoStrats

#SaxoStrats
  • US bourses closed lower with the Nasdaq leading the plunge
  • A serious correction for US tech stocks might have started
  • Auto sector is showing weakness as well
  • The oil rally is on halt while gold receives political support

Saxo Strats
 By Clemens Bomsdorf

The United States having its big July 5 holiday gives us the opportunity to have a closer look at the Nasdaq while it stands still. Saxo’s analysts are not that positive when it comes to the important US index. 

“A drop to 6000 or even 5800 over the summer is not unlikely,” says technical analyst Kim Cramer Larsson. The Nasdaq Comp now is at 6,110 and has been on the rise for quite a while. Presenting a chart, Larsson says “we see a significant long term uptrend.” 

But now he discovers a shoulder-head-shoulder formation, though not the clearest and most beautiful one. “Usually those are very reliable patterns,” says Larsson. The near future could bring the next shoulder and hence retreat of the index. A weaker period may be on the cards as well for the S&P 500 says the Saxo technical analyst.

Nasdaq
 Source: Saxo Bank

Looking more at corporate and macro data, Peter Garnry, Saxo's head of equity strategy, foresees similar movements. “Looking at the charts, fundamentals, as well as news flow, it is pretty clear that we are moving into a proper correction at least in the technology sector,” says Garnry, adding that it remains to be seen how the other sectors will react. 

Yesterday was yet another weak session in the US with tech stocks leading the fall. 

On the company and sector level, cars and Tesla are falling under scrutiny. Tesla last night announced 22,000 Q2 deliveries with production at 25,700, which was slightly disappointing – the constraint was a lack of batteries. 

For Garnry that means that larger carmakers like Volkswagen cannot easily catch up by ramping up production as they would face the battery shortage as well. When it comes to the general US auto sector, Garnry says, that “there is definitely some weakness ahead.”  

On its way up on the opposite side is gold. Recently driven by the weakness in bonds and JPY it is now supported by global uncertainty steaming from Trump's foreign policy as well as the most recent North Korean missile test.

Lastly, having a look at oil, for Hansen it looks as if the rally has now paused and the focus is on the June jump in Opec output by Libya and Nigeria. “We have ample of oil supply which has to come down,” he says. At the same time as the market is looking on covering shorts rather than long term developments, there is still some support.

North Korea
North Korea is once more signalling aggressiveness by testing a missile. Photo: Shutterstock 

Clemens Bomsdorf is consultant editor at Saxo Bank

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