Tech Sector Struggles, Tesla Rebounds

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Commenting on the struggling tech sector and today’s trading Gorilla Trades strategist Ken Berman said:

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Tech Sector Struggles

Today’s choppy session left a lot of questions open with regards to the short-term trend on Wall Street.  While the Russell’s new all-time high and the rally in cyclicals was a huge plus for bulls today, yesterday’s selloff did some damage in the tech sector, and most tech giants struggled today as well, which is a warning sign for the rest of the week.

The main sectors diverged substantially yet again, as the stimulus-related flows the wild swings in Treasuries, currencies, and commodities all shaping the market. Industrials, financials, and materials all fared well, but the energy sector was the strongest by a wide margin thanks to oil’s new recovery high. Consumer discretionaries were helped by Tesla’s (TSLA, +4.7%) rebound and the rally in most virus-sensitive industries while the recovery in the retail sector also gained momentum today with domestic-focused firms leading the rally.

Trump's Impeachment

While the second impeachment against the President is not yet official, the House will likely vote on the matter by the end of Wednesday but Thursday could be even more important from a political perspective. Joe Biden is expected to announce the details of his COVID relief plan and that could cause major waves across the board even following the strong rally among small-caps and cyclicals. Analysts widely expect another stimulus check, but investors will likely focus on the structure of his other plans which could lead to wild swings in the most-affected sectors.

The COVID-related headlines continue to be mixed and confusing for investors as even though the long-term picture continues to slowly improve, the worrisome short-term trends are still weighing on sentiment across the globe. The U.S. vaccine push has been accelerating in the first days of the New Year, and thanks to that, over 9 million doses have already been used in less than a month, which is still not enough to have a material impact of the current outbreaks. The new lockdowns in China and the surging cases in Europe also add to the short-term fears, so volatility could increase in the coming weeks.

Fed's Beige Book To Come Out Tomorrow

We will have another busy day of economic releases, with the Consumer Price Index (CPI), the Fed’s Beige Book and the weekly crude oil inventories report will all come out tomorrow. The CPI is forecast to increase by 0.4%, but the weaker-than-expected retail sales and personal spending numbers make a considerably lower reading possible. The overnight session could also see heightened activity as Eurozone industrial production will be out and European Central Bank (ECB) President Christine Lagarde is scheduled to speak as well.

The rally in small-caps led to extreme readings in some of the key breadth measures, and thanks to the Russell 2000’s surge to a new all-time high, now more than 90% of stocks on the NYSE are above their 200-day moving averages. According to Morgan Stanley’s (MS, -0.3% data this only happened five times in the past 50 years, and its short-term implications are negative, but from a long-term perspective, these extreme readings suggest impressive underlying strength. For example, in 2009 the measure peaked during the recovery from the prior bear market, and stocks registered years of massive gains after that.

The financial sector has been on fire, so far, this year, and the popular XLF ETF (XLF, +1.0%) is already up by almost 10% fueled by the improving U.S. economic outlook and the rally in Treasury yields. Today, the ETF closed right at its prior all-time high from last February, finally erasing all of its COVID losses. The likes of Goldman Sachs and Morgan Stanley provide healthy leadership for the sector, and should Treasury yields continue to push higher, a major technical breakout could be ahead for the XLF. Stay tuned!


  • The major indices all finished slightly higher, but bulls failed to erase yesterday’s losses
  • Small-Caps spearheaded today’s bounce with the Russell 2000 closing at a new all-time high
  • Cyclical issues also shined as investors continue to bet on a quick U.S. economic recovery, fueled by the Biden administration’s stimulus plans
  • The precise of crude oil topped $53 per barrel for the first time since the start of the pandemic
  • Several Chinese cities announced containment measures amid the reemergence of the COVID-19 virus in the country

Market Wrap

Index G/L Current level Year-to- date 50-day 200-day
Dow 60 31,069 1.5% 29,758 27,084
Nasdaq 36 13,072 1.4% 12,301 10,716
S&P 500 2 3,801 1.2% 3,639 3,281
Russell 2000 37 2,128 7.7% 1,852 1,539

Advancing issues outnumbered decliners by a 3-to-1 ratio on the NYSE today, with 226 stocks hitting new 52-week highs and no stocks hitting new 52-week lows, while volume was slightly below average.

Price Action Gauge ******** (reading for 01/12: 74)

Despite the Russell 2000’s new record the large-cap benchmarks remained under pressure due to the weakness in the tech sector, so overall, price action hasn’t improved much on Wall Street, and volatility could still pick up in the second half of the week.

Oversold/Overbought Gauge ******** (reading for 01/12: 46 Color: green)

The key momentum indicators were virtually unchanged today, with regards to the major indices, and the benchmarks are still in overbought territory according to them following today’s choppy session.