Market Overview

24 July 2020

Gold to Besiege the $1,900 Fortress as Hotspot Stocks Take a Litmus Test

Gold prices jumped brilliantly on Thursday trying to break through the $1900/toz psychological landmark. All precious metals, including platinum, silver and even palladium managed to show new highs of the year even before the downward spurt of a quick technical correction on U.S. stock indexes. Gold futures followed by the spot and CFD contracts continued to besiege the $1,900 fortress on Friday morning, probably forcing the market crowd to not collect their profits yet.

This may implicitly indicate not only higher targets expected for gold above the historical peaks of 2011, but also the temporary technical nature of the present correction in global stocks. Actually, the price "rediscounting" of several key stocks such as Amazon, Google, Facebook and especially Apple, which were running ahead at a very fast pace this summer, established the basis for a decline of the high-tech Nasdaq index yesterday. Apple shares led the sell off after Goldman Sachs remarked their intention to temporarily avoid the stock, announcing some expectations for slowing growth in 2021. "We continue to forecast calendar 2021 earnings per share for Apple that is 16% below consensus as product unit sales and average selling prices falter and services growth slows," Goldman Sachs said in a research release. Many investors previously felt that the rise in Apple stocks to $400 per share was like an unripe fruit picked up before the proper moment, so the prices fell to the $371 area as a result of a powerful profit-taking wave.

The situation was seen to be similar when it comes to inflated expectations for other companies' Q2 reports, which were already taken into account in the current prices before, and now these expectations are partially sold. All this means preparing for repositioning at more favourable discounted prices in the near future, rather than waiting for some poor prospects or serious problems for these summer market headliners.

The interview of U.S. Treasury Secretary Steve Mnuchin for CNBC TV may also be cited as a local trigger for the stock’s correction as he said the payroll tax cut will not be in the coronavirus bill to be discussed in the Congress now, and Republicans are still working on some "new formula for expanded unemployment benefits". And then the global indexes drop was supplemented by the Asian shares decline as the Chinese markets skidded from six-month peaks after Beijing closed the U.S. Chengdu-located consulate in the south-western part of the country as a response to the closure of the Chinese consulate in Houston, which made the Sino-U.S. atmosphere worse.

China’s announcement came just several hours after the U.S. Secretary of State Mike Pompeo delivered a speech outlining the Trump administration’s increasingly aggressive stance toward China on virtually every aspect of the relationship — from trade to technology. But until now, markets did not give these tensions any long-term significance, considering them as a kind of gallery-hit for the U.S. electorate. To test this common point of view, it may be extremely interesting to observe how U.S. stock exchanges  close this Friday, and what kind of sentiment will prevail next week. Such big high tech companies as Amazon, Apple, and Google are going to report on July 30, as well as many others from both the Nasdaq and S&P500 lists. The market reaction on these reports may serve as a litmus paper for the market.

Microsoft Corporation already ended the previous day with a four % decline in price after its CEO's forward guidance fell short of consensus estimates and overshadowed better-than-expected quarterly results. So, next week's behaviour could become one more litmus test not only for these hotspot companies' prices, but also for the broad market. It could be fair to say that it is worth noting that not all of the hotspot companies adjusted their prices following the rest of the market yesterday. For example, Twitter sidestepped the general market's selloff to end up the day more than four % higher as the well-known social media company reported a 34% jump in daily active users. So, the already reported Twitter seems to be aiming to close three weeks in a row on a positive note as, let's say, McDonald's shares. The fast-food giant is probably going to finish the current week in the same way, on expectations for the next earnings date set for July 28.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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