Singapore (30th November 2020) – A slew of positive news in recent weeks sent the US stock indices to new and recent highs with investors seen making the switch to real economy stocks, taking some steam off the technology darlings.
Some analysts, however, cautioned that while real economy stocks are now favoured, the tech stocks are still expected to make a comeback in the New Year.
The Nasdaq Composite reclaimed its November 9 high and made a second all-time high to 12,236.23 points before closing at 12,205.85 on Friday half-day trading session. Dow Jones Industrial Average was just a few distant away from its all-time high closing at 29,910.37 points. As of Friday, Nasdaq Composite has gained over 36% this year, and the Dow up 4.81%, notwithstanding the increasing cases of Covid-19 infection globally.
Chart 1: Nasdaq Composite
According to CNN Money, the market is currently driven by “extreme greed” as reflected by its Fear & Greed Index. Such emotions may be driven by the series of positive trial results of Covid-19 vaccine produced by companies such as Pfizer, Moderna and Astrazeneca. As of Sunday, news emerged that the Pfizer Covid-19 vaccine is now making its way to the US from Brussels. That news could ignite much hope that both lives and businesses will be back to normal by 2021.
Chart 2: CNN Money’s Fear & Greed Index
Source: https://money.cnn.com/data/fear-and-greed/
Dow Jones Transportation Index Surges
Investors flee the growth stocks as they could also see the attractiveness of real economy stocks, having been hammered by the pandemic and are now moving on to the upside fuelled by hopes that economic activity will recover to pre-Covid period.
Such expectations are reflected by the behaviour of the Dow Jones Transportation Average Index (DJTA), also known as Dow Transport. As soon as positive news on the vaccine development broke, the index charged to the upside. On Monday night (23rd November) last week, it gapped up when President-Elect Joe Biden received official support from the White House for a peaceful transition process. It closed Friday (27th November) at 12,561.43 points.
Chart 3: Dow Transport
Source: Yahoo Finance
The DJTA is the oldest US stock index comprising 20 real economy companies – from the airlines, trucking, marine transportation, delivery services and the logistic sectors. Eight of the DJTA’s 20 constituents are Shariah-compliant based on AAOIFI rulebook as screened by BOURSA, IdealRatings screening solution. As economic activity picks up and income grows, more of the 20 constituents are expected to be in compliance with the Shariah.
United Parcel Service (UPS)
United Parcel Service (UPS), one of DJTA’s 8 Shariah-compliant constituents is among the beneficiaries of investors’ interest. UPS has been up-trending since May and gapped-up at the end of July 2020 propelled by stay-at-home shopping. It then gapped back down in late October, only to be immediately scooped up by fresh buying as soon as the vaccine news broke.
Chart 4: UPS
Currently, UPS price action is supported at the USD 155 support area, which was established since August 2020. A further push to the upside and for it to break the immediate resistance at USD 172, requires a volume surge of above the average 11.55 million (depicted by the volume indicator). A break above the resistance unaccompanied by the volume is indicative of a fake or a weak breakout.
In addition to transportation, other sectors such as automotive, logistics and retail, have also become the sought after stocks by investors due to their attractive pricing and technical patterns.
Tech Stocks Search For New Direction
The tech darlings such as Microsoft and Dexcom that showed strong growth and resilience during the pandemic, are searching for new direction.
Microsoft
Chart: 5 – Microsoft
As the chart above indicates, Microsoft’s (MSFT) has entered a consolidation phase, finding its way as demand for the stocks dried up since the September market correction.
Microsoft volume indicator on the chart above shows a downward slope and its price trading sideways confined within the USD200 – USD230 range. This is notwithstanding the Nasdaq composite making yet an upward move.
Perhaps Microsoft could make a late move upward, but if it does, it needs to be accompanied by a volume surge while price pushing through the USD 230 resistance area. The absence of volume accompanying a price break above the USD 230 resistance area could mean it’s a fake breakout.
Dexcom
Some, like Dexcom, fell through multiple support levels showing head and shoulder patterns.
Dexcom will need to arrest its descend to recover. A failure to find support at the USD 305 (Support 1) level would potentially lead to further downward move towards the USD 250 area (Support 2).
Disclaimer: Mr Mukhriz Mangsor is a Certified Financial Technician and an independent trader who contributes to www.halaluniverse.net on a regular basis. He focuses his attention on the technology stocks listed on Nasdaq. The content of this article are not recommendations to buy or sell a security. All information is intended as information for educational purposes only and not as investment advice. Readers are advised to seek professional investment advice from licensed investment advisors before investing.
