foxex: Dreaded Uncertainty

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Thursday, September 17, 2020 Headlines

1. Stocks' uneven selling may be driven by election fears
2. Profit taking among 5G stocks
3. Communication stocks still trending?

Market Moves

The major indexes started off today's session with selling that seemed like a continuation of the moves from last week. However, the Nasdaq 100 index (NDX) and the S&P 500 index (SPX) both rebounded mildly into the close. This seems to indicate that investors haven't manifested a pattern of panic selling, but rather something else.

The sentiment among investors seems to be that collectively they are growing slightly more concerned about the election procedures. Consider how the chart below shows Invesco's Nasdaq 100 ETF (QQQ) in the left panel, and the CBOE Volatility Index for the Nasdaq 100 (VXN) in the upper right panel. The big tech index seems to have broken its strongly upward trend, and the volatility index appears to be on the rise. The lower right panel offers a clue.

The third chart below is an interesting calculation of the VIX futures for December Expiration (VIXDEC) divided by the VIX futures for the November expiration (VIXNOV). When this number is rising (as it shows to have strongly risen today), it means that investors are more concerned about falling prices for the month of December than for the month of November. That explicitly states that options sellers see more risk of downward prices AFTER the election, rather than before.

Profit Taking among 5G stocks

Besides election fears, there is another dynamic that may be growing its influence in shaping price trends in the markets right now. Namely, 5G euphoria may have reached its limit. The chart below compares a breaking trend line on State Street's Communication Sector index ETF (XLC) with three other stocks that investors have targeted because of their potential to benefit in 5G technology: Skyworks Solutions (SWKS), Dexcom (DXCM) and of course Apple (AAPL).

Notice how all of these stocks show a broken trend, and potential to drop lower. No one knows how much investment is too much where new technologies are concerned. Only in hindsight is the top reached. At a minimum, the current sell-off may be an indication that the top is near for 5G technology.

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Communication Stocks Still Trending?

Two stocks likely to be influenced for the worse by a downward trend associated with 5G, include mobile phone giants Verizon (VZ) and T-Mobile (TMUS) as depicted in the chart below. For now, these stocks have pulled back to their trend lines and seem to be ready to move higher. If they do not rebound, they could easily dip lower, breaking into a new downward trend. Chart watchers interested in 5G opportunities would do well to keep an eye on these two stocks for the coming week.

The Bottom Line

Stocks rebounded slightly into the close, but only after a significant gap down and some renewed selling today. Volatility pricing adds in the possibility that the election activity may bring some late-November craziness to the news cycle. Chart watchers beware.

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