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Options Tech Wreck!!

NAS100 – Daily Candlesticks
Source: GKFX / MT4 (July 31, 2020)

The Nasdaq 100 just saw its biggest daily plunge in months in what could be the beginnings of a change in trend. However, technically the trend is still up with the price above both a rising trendline and a rising 50-day moving average.
 

TAKEAWAYS


•    Big Tech stocks have worst day since March, Dow drops 800 points
•    Tesla - 9%, Apple - 8%, Zoom -10%
•    Bitcoin slides back to 10,500 (down -12% in 2 days)
•    US dollar rises again, ends off highs
•    DAY AHEAD: Non-farm payrolls
 

MARKETS


It was a rocky day on Wall Street after big tech stocks finally ended a huge 10-day winning streak with some of the biggest daily losses since March. There was some limited rotation into ‘reopening stocks’ with Carnival Cruises rising and Macy’s up over double digits. 

It was a mixed day in Asian stock markets on Thursday with China and Hong Kong lower while the Nikkei was up over 1% challenging 6-month highs. European shares reversed early gains, carried lower by the drop in tech shares.

The US dollar continued to gain traction on Thursday but ended off its highs as economic data improved and reduced the need for a haven. The dollar strength limited the ability of gold and silver to capitalise on the weaker stock market sentiment, with both nursing small losses. Oil closed lower but recouped most of its early losses.
 

Tech Wreck


The trigger may have been the better economic data in Europe and the US. Germany’s final August PMI was revised sharply higher and weekly US initial jobless claims fell back well under one million. This caused a shift out of the tech sector and into some value stocks that do relatively better as the economy reopens and recovers.

The underlying reasons for such rapid moves likely stem from the options market, which had been seeing some the highest call volumes in tech stocks since the dot-com bust in 2000. A low put/call ratio is a contrarian sentiment indicator that the market is overbought. The timing likely also plays into it with traders covering their options trades before the long US holiday weekend.

The highest momo gainers were hit the hardest with Tesla, Zoom and Salesforce all down heavily. Apple and the rest of big tech led the charge lower after having barely seen a down-day through August.
 

NFP Preview


The average forecast for today’s August jobs number is 1.37 million, that’s down from the 1.76 million in July. There is again wild variance on the average with guesses from a loss of 100,000 to job gains of 2.4 million. The unemployment rate is forecast to drop under 10% to 9.8%. Overall the expectation is that large numbers of Americans will have returned to work, but at a slower pace than the prior two months.
In the context of its recent strength, strong jobs data could be good for the US dollar but could weigh on stock markets if more traders switch out of tech and into ‘reopening’ stocks as the economy improves. 
 

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