Markets are Under Siege – Try the Fish & Chips

By KENNY POLCARI

Things you need to know:

  • Global Markets under siege – Virus, Vaccine, Banks, Tech and death of RBG
  • 5 global banks alleged to have ‘laundered’ money on behalf of some ‘bad guys’
  • Tech continues to come unglued – as algo’s run for the exits
  • Tech is more than 5 stocks – don’t make emotional decisions (see link)
  • ORCL/WMT make TikTok deal – but who is really the winner? China?
  • Try the Fried Fish & Chips (makes sense as mkts getting fried)

Markets continue to tremble – Election drama heating up, eco data mixed, rising virus cases around the world causing another round of talks of whole country closures in Europe (not good), proving that not one major country in the world that has ‘succeeded’ in controlling this pandemic… then the arrival of  US envoy Keith Krach – Under Secretary for Economic Growth and Environment to Taiwan last Thursday to attend the memorial service for former President Lee Teng-Hui to show support for the island – in direct defiance of Beijing also did not help the mood… in fact – Beijing responded to the news of Krach’s arrival by sending not one but two anti-submarine aircraft into Taiwan’s ‘air defense identification zone’ showing their dissatisfaction with the latest US move… onto an island that is considered a ‘China territory’ by China but is an important ally of the US and this is causing ‘war games’ off the coast of China/Taiwan… helping to raise the temperature of concern on a range of ‘geo-political’ issues… And so it was… stocks which have been under pressure anyway came under more pressure…

Stocks ended the week lower… with Tech taking all the hits sending shivers thru the rest of the market… by the end of the week – all of the indexes were lower – in fact the S&P – which I had hoped would find support at 3328 – did not… as the day wore on it got weaker and weaker and then at 12:32 pm… it broke and never looked back… losing a total of 38 pts and closing at 3319 – ending the day BELOW its short term trendline at 3342… setting us up for more downside action in the days ahead… and if today is any indication – get ready to get rocked…

Things to watch this morning… and there are plenty… not to mention that US futures are getting slammed… Dow futures down 550 pts, S&P’s down 52 pts, Nasdaq down 184 pts and the Russell losing 26 pts…

Global markets are under siege… news that 5 big global banks have been ‘allegedly’ laundering money for a range of ‘bad guys’ hit the tape early this morning… (meaning while we were sleeping) – not good! Bank names include: Standard Chartered, Deutsche Bank, JPM, HSBC and Bank of NY Mellon and all are lower this morning… I can’t wait to see how Jamie (Dimon) responds to this… Actually surprised that there hasn’t been a response yet… it’s not like he didn’t know it was coming… I mean Come on!

Trevor Milton – Nikola CEO up and resigns about 5 hours ago as he vows to battle the negative report published by Hindenberg Research last week claiming that he and Nikola are nothing more than a fraud… Nikola stock which is down 34% since the report came out last week is down another 25% in the pre-mkt this morning… while GM is down 3% – recall that GM made a fairly substantial investment in Nikola – only weeks ago – as they look to move into the alternative energy transportation industry… and so the Robinhood ‘investors’ are all dumping their NKLA holdings in response to this latest headline… expect to hear all about what this latest Robinhood move means… (it means nothing… just fyi).

In addition to those two issues and the ongoing drama surrounding the virus, the shutdown, the economic damage, the election, etc. – we now have Friday’s death of ‘Notorious’ Supreme Court Justice Ruth Bader Ginsberg (RBG) to deal with (now this has been simmering on the back burner for a while now – but the markets have been ignoring what the implications could mean) and this throwing another wrench into the drama that is unfolding in DC and across the country surrounding the election and who has the right to select the next Supreme Court Justice – and over the weekend – there was plenty of commentary on the Sunday news programs about what both sides think – and it goes right down partisan lines… Dems say ‘no way’ while the GOP says ‘yes way’… and NY’s Chucky Schumer made it clear – If the GOP forces this issues and rams a nominee thru the process – then when the DEMS take control of both the WH and the Senate in January – ‘everything is on the table’… and everything means just that – everything… a KEY point here is that he has indicated that the DEMS will create 4 new additional seats on the Supreme court and then fill them with what is sure to be ‘far left candidates’ – threatening a host of prior rulings… while this should not really price stocks in the long term – it is just another one of those ‘non-financial issues’ that is sure to create a lot of short term noise surrounding the markets, investing, confidence and the future of the country.

Next up is news that Trump has essentially approved the Oracle/Walmart/TikTok/ByteDance deal… or as he put it – he has approved it ‘in theory’ – in fact he has ‘blessed this deal’…Look – he wanted Tiktok to be owned by an ‘American’ company – it is not – and even though he said over the weekend – that it will have nothing to do with China – that is a false statement… Oracle and WalMart will together own 20% of the new company… while ByteDance (Chinese company) will still own 80% of the new company. (Feels like China won). He said that he wants all of the American data created by TikTok users to be in American hands for national security reasons – and on that point the US won… Oracle will now be the ‘cloud provider’ – hosting all of the US user data on servers located in the US – but the algo that runs the app – the very thing that makes TikTok tick is set to remain in Chinese hands… still belonging to ByteDance (sounds like China won) – which continues to raise the possibility of national security concerns. To try and sweeten the deal someone added (and no one knows exactly who since both sides seem to be confused) that a $5 billion education fund is being set up to teach US children how to read and do math online… more to come…

Remember – on Friday I said that ‘anything short of complete US ownership falls short of the Trump mandate’… well – let’s see what’s next… in any case we still have to deal with one comprehensive federal law that governs data privacy… whether you believe it or not – it’s a problem… a problem that has yet to show its ugly face… but when it does – watch out…

Ok –Like I noted – US futures are getting slammed, Asian and European markets under pressure as global investors take a breather… sell algo’s hitting the system causing any buyer to bid lower… once again leaving a void in prices in the short term. Asian markets closed all lower by ~ 0.7% or so, while European markets are all down better than 3.4% across the board… the banking news and the possible closure of whole countries once again weighing big on those markets…

In the US – The global banking news really driving this morning’s sentiment… Standard Chartered down 6%, HSBC down 5.3%, Deutsche Bank down 8% while JPM is quoted down 4%, BNY is quoted down 5.7% in the pre-market while the ‘other news’ is playing a supporting role in the latest Risk Off chapter.

As expected and as we have discussed – the damage to the market is coming from the FAANG+M stocks… And exactly – why is that a surprise?  They have completely outperformed – but as I pointed out on Friday with Nicole Petallides on the TDAmeritrade network – the tech space is not just 5 stocks…it is much bigger than that – so do your homework – don’t get dragged down with watching what 5 stocks are doing… click here for more of my thoughts…

Yes – as these names get hit – the market will get hit – because of the role they have played… but tech also includes: Cybersecurity names, IoT (Internet of Things), Cloud storage, data storage, FinTech, software/hardware and the list goes on and on… Tech isn’t going anywhere and anyone selling their  long term holdings of Apple because its down 22% needs their heads examined…

Look – some institutions (and retail) are using it as an ATM to meet financial obligations which they can’t avoid – they need some money so they take it from where it has outperformed… others are just trading it trying to create ‘alpha’ by flipping it around… but if you are a long term investor and you don’t need the money – the ecosystem that is Apple is alive and well… let this play out a bit… yes it has broken its short term trendline on Friday and this morning its weaker again… but all that means is it becomes more attractive… Can you honestly say that the Apple story has changed? Are the fundamentals any different today than they were last month? NO and NO… so do not make an emotional decision… it’s Apple… don’t forget that basic fact… There is clearly no need to chase it, the aggressive sell algo’s are happy to give it to you… and as I have been saying for a while – patience is a virtue.

Eco data this week includes: Chicago Fed Survey (today) exp of 1.19, tomorrow brings us Existing Home Sales of +2.6%, Richmond Fed Survey exp of 12, Wednesday: Markit US Manf PMI of 53.3, Markit US Services PMI of 54.5 – both well within the ‘expansion zone’. Thursday will be Initial Jobless Claims, Cont Claims, New Home Sales, Kansas City Fed and more…

This morning the S&P is at 3319 – closing below its 50-day moving average… and this morning it looks to fall another 55 pts or so as the bell rings…and if we follow the Europeans – then we could see the S&P and the other indexes lose about 3%… so for the S&P that means 100 pts… leaving us at 3219 which puts up just above its intermediate trendline at 3185 – a level I now believe we will test in the days ahead… as all the geo-political issues take center stage and the election moves closer and closer…

Remember what I said – the swift selloff that we saw in March followed by the swift recovery as if nothing had happened can be and apparently is being met with another swift selloff… so sit tight… and hope that a test of trendline support at 3185 holds… My guess is that it depends on how heated the election rhetoric gets and what the options market tells us about when we will get a result… currently – options traders are pushing the volatility out until December – which suggests that we won’t have a final result until then… and if Trump loses – then we can expect a legal challenge to the mail in ballots for sure… so buckle up…

Take good care –

Kp

Send your feedback here: AskKenny@sevenfigurepublishing.com

Follow me on Twitter: @KennyPolcari

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