Technology Sector Setting Up For A Crash? Part II

In the first section of this article, we highlighted three key components/charts illustrating why the “rally to the peak” is very likely a result of a continued Capital Shift away from risk and into the US stock market as an attempt to avoid foreign market growth concerns. This method of pouring capital into the US stock market is a process that is driving incredible asset rallies in the US technology sector. Already the US technology sector (FANG and our Custom Technology Index charts) are up almost 15% in 2020. How long will it last and when will it end?

Recently, China has revised the Coronavirus data with a sharp increase in infection cases – now over 40,000. We believe the true number of infections in China are currently well above 250,000 from video content and other data we’ve researched. We believe economic data originating from China for January and February 2020 will show a dramatic 60% to 80%+ decrease in activity for many of the major cities. Satellite technology suggests manufacturing and consumer activity in most major Chinese cities is only a fraction of what would be considered normal – 10% to 20% or normal levels.

This means the manufacturing capacities in China have collapsed and that supply to the rest of the world will collapse as well. This means major electronics manufacturers and suppliers will suddenly quickly experience shortages and outages very shortly. This is why we believe the technology sector may come under severe pressure over the next 6+ months and why we believe the “high-flying” technology sector may be one of the biggest sector rotations of 2020.

Just how much of a “collapse” are we talking about? How can anyone attempt to quantify the true scope of this potential “black swan” event and how it may result in sector rotation?

Let’s start with some of the basics. First, the global economy has been focused on Chinese manufacturing and production of goods for more than the past 20+ years. Over the past 10 to 15+ years, the Chinese economy has become the central hub of manufacturing and supply for some of the largest economies on the planet. At this point in time, nearly every nation on the planet relies on China in some form for some essential goods that support their local economies.

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