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Chart Advisor: Commodities vs. Tech

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Monday, February 22, 2021

1/ Commodity trades lift as US Dollar and tech stocks slide  

2/ DE-FAANGed 

3/ Hard resistance on NVDA 

4/ The bottom line

1/ Commodity Trades Lift as U.S Dollar and Tech Stocks Slide 

Commodity prices surged to start the week as the U.S. Dollar index (DXY) completed its third consecutive daily move lower. What is interesting about this move is that large cap tech stocks seem to be getting the most negative impact. Invesco’s Nasdaq 100 index closed more than 2.5% lower today as investors accelerated their exits late in the session.   

This kind of strong sector rotation doesn’t seem to be hitting all stocks equally. Certain sectors seem to fare better than others. For example, Disney (DIS), General Electric (GE), Chevron (CVX) and Alaska Air Group (ALK) all seem to be doing well as investors still expect travel and discretionary spending to pick up in the months ahead.  

The chart below compares how the money coming out of the DXY and QQQ seems to be finding its way into commodities such as oil and precious metals. The Crude Oil futures (CL) and iShares’ Silver Trust (SLV) both show a strong surge in the face of this market pullback, suggesting investors need to diversify their approach to battling inflation.    

2/ DE-FAANGed 

As the chart below shows, the big brand, large-cap technology companies seem to be particularly hard-hit. Tesla (TSLA) led all others with its drop (which the Chart Advisor happened to forecast last week). This is an interesting pullback and it will be very important to observe how these stocks perform over the next week.  

Apple (AAPL), Microsoft (MSFT), Tesla (TSLA) and Amazon (AMZN) all broke through their short-term trends as sellers took profits in greater numbers than anticipated. Chart watchers will need to keep an eye on whether these four stocks rebound this week or not. If so, then the bullish market should continue for another few weeks. 

3/ Hard Resistance on NVDA 

Nvidia (NVDA) makes graphics processing units (GPUs), which are the heart of a computer’s visual rendering work. These components have become popular for quite another reason than originally intended, one that the product developers may not have designed for the cards to handle.  

GPUs are now the most important source of cryptocurrency mining power, and cryptocurrency values are going to the moon, as they say, so why is NVDA stock stuck in such a range? The answer is connected to the supply problems the company is having. Nvidia GPUs are very hard to find right now and though the demand is sky high, the company isn’t able to make money at current prices. At least not yet anyway. When the earnings report is released tomorrow after the close, the news may shed light on the solution and then things may change. Look for the shares to make a significant move after hours.

4/ The Bottom Line 

Commodity prices rose and investors seemed to take their money out of risky stocks and place them into risky commodity trades rather than safer classes of assets. The large tech companies were notably harder hit for now. NVDA has its own problems on top of the market sentiment. 

Originally Published on February 22, 2021

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