Investing.com | Jun 12, 2017 06:44AM ET
by Pinchas Cohenh3 Key Events/h3
The tech sector selloff that started in the US on Friday, when FANGs and related NASDAQ stocks fell, continued this morning in Asian markets, led by Samsung Electronics (KS:005930) and Tencent Holdings (HK:0700).
Friday’s tech sell-off was ignited by Robert Boroujerdi, global chief investment officer at (NYSE:Goldman Sachs), who warned that extremely low volatility after high valuations may leave investors holding assets that are overvalued. While a negative volume divergence is a red flag on any day, when the US's US's FAAMG tech leaders— Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL)—became heavily overvalued, it becomes an extreme risk.
Note however, that this may not be as extreme as it seems at first glance: traders often sell their stakes in an overbought asset and choose to reinvest into stocks that have a lower valuation and lower volume of shares. The FAAMG's remain reliable assets overall, but traders may be shifting out of mega-cap techs for now, on possible profit-taking.
Johnson & Johnson (NYSE:JNJ) for example, is the biggest non-tech stock in the S&P 500 index. In stark contrast to Apple’s diminishing volume on its price rise, Johnson & Johnson’s volume has risen together with the price, demonstrating that a rising interest in the stock can support the rising price. When a rising price is followed by diminishing interest, fewer investors will be left holding devalued stocks.
Tech stocks are also the worst performing sector in Europe this morning, down by more than 2 percent on the STOXX 600.
The market narrative has it that European stocks are declining on the UK's political risk, but in our view, a weaker UK gives the EU the upper hand in the Brexit negotiations.
It was no surprise then that the dollar’s jump on Friday wasn’t on the greenback's strength, but on euro and pound weakness. Draghi’s lower inflation projection for the eurozone and the political chaos that is expected to ensue in the UK led to the weakened status of both European currencies. Today, the dollar reached its downtrend line and sharply declined, suggesting that Friday’s jump was nothing more than a correction.
The US dollar is still subject to considerable political headwind at home, after Attorney General Jeff Sessions offered to testify in front of the Senate Intelligence Committee to answer questions about alleged Russian involvement in President Donald Trump's campaign.
h3 Up Ahead/h3We may get our first clues on Theresa May’s chances of keeping her job when she addresses the 1922 Committee of rank-and-file Tory lawmakers on Monday. Short-term traders of the pound should pay attention. Every word and reaction will almost certainly have a strong impact on cable’s value.
The FOMC’s quarter-percent hike, for the second time this year, is already priced in, but what will make the dollar move is the Fed’s response on the recent string of disappointing economic data and details regarding rolling back the US's $4 trillion balance sheet.
Central banks in Japan and the UK also will be holding policy meetings this week. The former has been under a lot of pressure to start talking – on any level – about its balance sheet, and the UK is forecast to keep its interest rate unchanged at a record low. The overwhelming political and economic future vis a vis the Brexit uncertainty is not the time for the BOE to make any changes.
h3 Market Moves/h3Stocks
Currencies
Bonds
Commodities
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.