We have finally come to one of the most anticipated and what will likely be one of the most entertaining events of 2020, the Presidential debate between candidate Joe Biden and the incumbent President Donald Trump. Grab your popcorn because if nothing else, this debate is going to be entertaining to watch. Tune in at 9 P.M. ET.
The markets are getting pre-debate jitters today, letting go of some of yesterday’s gains, and leaving room for market action tomorrow. Almost every sector traded lower today, with the exception of communication services.
The fear index, aka the VIX, is elevated back up off August’s lull. Investors and traders are back at the edge of their seats in anticipation of what changes this election may bring to the equity markets. Still, the trend in market fear remains downward sloping from its peak in March.
Recent Stock Activity
The S&P 500 bounced hard off the 3,200 resistance-level, a level we haven’t seen since July, surging roughly 5% from the lows last Thursday to the 50-day moving average (3,360) this morning, which has become a new resistance level. Today we broke down off this resistance.
The S&P 500 remains over 7% off its highs in early September, heading back down towards correction territory (10% or more off recent highs).
Tech Tech Tech
Tech has been the market driver in 2020, a year that will become synonymous with change. Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT) catalyzing much of the markets surge from the March lows. The three musketeers of tech have gained almost as much value in 2020 as the entire 505 stock index has appreciated combined in this unprecedented year of trading.
The trillion-dollar trio has brought more than $1.7 billion in value to the S&P 500 in 2020, which can attribute about 80% of this index’s total returns.
These outsized returns should come as no surprise. Many of the S&P 500 stocks remain down for the year as the US economy crawls its way out of a recession. There has been massive disparity of gains across the stock market sectors.
Tech has been juiced-up by the massive digital shift that economies around the world had to adapt to stay operational while controlling COVID-19. Our immediate necessity for cloud-computing, e-commerce on an enormous scale, and other digital platforms transformed the technology space into a secular sector, which appears to keep growing no matter the economic climate.
Sectors that are still yet to fully recover include travel & leisure, banks, energy, along with other cyclical value spaces.
Tech has undoubtedly driven this new bull market from the March lows, but will it be able to keep us buoyant through what has already begun to be a turbulent election season? Uncertainties remained elevated for the remainder of 2020.
The Level Check
Like I discussed earlier, the S&P 500 came up to its 50-day moving average at close last night but broke down this morning. The break down was led by this year’s cyclical underperformers like financials, industrials, and energy.
I circled in red the two critical levels to watch out for in this election season. We are struggling to break through the 50-day (orange line) at 3,360 and are now looking at the 200-day (blue line) as a robust support level at 3,110. If the 200-day is reached, I believe it would mark the end of this ‘turn of the season’ correction.
The yellow line represents a support level around 3,200 that we bounced off last Thursday. This level represented a battleground between the bulls and bears throughout July, which you can see below.
This innovation-driven index has been able to get above its 50-day moving average this week and remains relatively buoyant in trading today, despite the market’s inflated anxiety. There aren’t any Nasdaq 100 specific indicators that I want to point out right now, but I think it would be useful to take a look at charts from its 3 most substantial holdings.
The Big Three
AAPL, AMZN, and MSFT are the three largest publicly traded enterprises in the world, making up 35% of the Nasdaq 100 and over 17% of the S&P 500. These three tech behemoths are market-moving equities and are worth examining on a technical level, as ‘reasonable’ valuations become increasingly ambiguous.
AAPL is the quintessential US tech stock that everyone has in their portfolio, whether through direct investment or ETF holdings. Apple is the fruit that keeps on giving as investors begin to realize that they can’t afford not to have AAPL in their portfolios. Apple has added $693 million in market value so far this year.
Yes, Apple is undoubtedly a tech force to be reckoned with, but is the stock market’s valuation push of these shares justified? The company broke the $1 trillion market cap milestone about 1-year ago, and already the stock has surged past $2 trillion earlier this month.
The concerning part about this move is that, while the stock has appreciated 100% in value over the past year, its price/earnings valuation has seen almost the same growth. This means that the majority of AAPL’s price action in the past 52-weeks (and beyond) has been merely a valuation push. There are multiple fundamental explanations for this like ultra-low interest rate, investors forced up the risk ladder, as well as mere FOMO.
Enough about my apprehension with this enterprise’s fundamental value, let’s examine the technical side. AAPL is the only one of this tech trio that remains above its 50-day moving average (orange line). As you can see from my chart below, this stock keeps blowing past my Fibonacci retracement levels. The 4-to-1 stock split at the end of August led to a massive surge of retail investors & traders into these shares, seeing AAPL as ‘cheaper,’ when in reality, it’s never been more expensive on a valuation basis.
AAPL has marginally corrected itself in early September, but I wouldn’t consider buying this stock until it drops below $100. I don’t think it will likely break all the down to its 200-day moving average (blue line) at around $85, but if it does, I will be down there ready to pick these shares up.
This stock has been the largest pandemic beneficiary of the bunch, having appreciated over 66% year-to-date. AMZN hit its 50-day (blue line) this morning then broke down, unable to break through this resistance level. I like this stock and will be considering a purchase if it breaks below $3,000 a share. $2,500 would be the level that I will be banging my fists on the table to buy if we can get down there again.
If AMZN can break through its 50-day moving average, I think the stock has a further upside going into its highly anticipated Prime Day (October 13th – 4th).
The global pandemic provided America’s e-com and cloud-computing market leader with the perfect storm, as society is conditioned to rely on this technology more than ever. Check out my recent article for more color on the subject: The Prime Day Effect: Will Amazon Deliver Returns?
MSFT has tracked the Nasdaq 100 quiet closely, yet still outperforming at 30%+ growth in 2020, while yielding an over 1% dividend. I am a big advocate of Microsoft, an enterprise that continues to stay ahead of the innovative curve for decades on end. The brainchild of esteemed Bill Gates remains the world’s software king with its enormously successful shift to cloud-computing.
MSFT is a stock that I believe every portfolio needs exposure to. This business is undoubtedly going to remain a cloud-computing leader through the roaring 20s.
As far as its technicals go, MSFT is in the same boat as most of the market: sitting right below its 50-day moving average. I personally don’t mind the stock price today but will likely wait to add to my position until it breaks through the $200 level again.
This debate will likely focus on the coronavirus, civil unrest, and economic disparities during this unprecedented global pandemic. I hope we can get some market-moving action from this, and I hope it is to the downside. The more the market drops, the riper buying opportunities become.
I will be keeping my eye on my market levels, the tech giants I discussed above, as well as a wish list of stock I have authored. Look out for my stock pick wish list in a subsequent article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.