Tech Resilience is The Key

American debt getting downgraded is a big deal.

Don’t listen to these analysts who say that we can just shrug it off.

We can’t.

Borrowing costs will continue to spike, and that is demonstrably bad for tech stocks in the long term.

Tech stocks already have a mountain to climb, and this is just the extra kick in the teeth that we didn’t need.

In the short-term, it doesn’t mean much in the day-to-day operations of tech companies, but the damage has been done.

This will have a knock-on effect and means that the haves and have-nots will accelerate their divergence.

Imagine building the next Facebook or Google of the future…

My quick hot take is that it will be impossible for companies to become competitive with the entrenched, because the lack of financing options really will bite hard.

Moody’s stripping the American government of its top credit rating, dropping the country to Aa1 from Aaa. The company, which trailed rivals, blamed successive presidents and congressional lawmakers for a ballooning budget deficit it said showed little sign of narrowing.

As Washington blows up the rules of global trade, the bill is coming due, and this will manifest itself in many ways.

Today the 10-year Treasury yields climbed four basis points to 4.52,% and their 30-year equivalents rose six basis points to 5.00%.

Unfortunately, this selloff in bond yields can create a dangerous bear steepener which will detract investors into American tech stocks.

Even worse, this is just the beginning, and we could be looking at sky high yields later this year.

I am quite happy with the price action intraday in the Nasdaq with the price action starting the day down lower than 1% only to rebound higher during the course of the day. It shows the risk appetite is there and this event has already been discounted by the market.

The Nasdaq has been quite impressive lately with investors buying the dips during the day.

Resiliency is a hallmark of the Nasdaq index and I do believe we are in buy the dip territory in the short-term barring any black swan event.

Interestingly enough, what the media doesn’t report is the struggles of the rest of the world including China, Europe, Japan, and the Middle East.

The rest of the world is doing worse and imagine if Fed Chair Jerome Powell cut rates, the US economy and tech stocks would skyrocket.

In either case, get reader for higher rates for longer as the pain trade ekes itself higher.

Rising Treasury yields would also complicate the government’s ability to cut back by running up its interest payments, while also threatening to weaken the economy by forcing up rates on loans such as mortgages and credit cards.

I am confident that any major technical pullback is now a buying opportunity in the short-term.

Traders should be going in and out with a quick stop.

It’s too risky to wade too deep in to the water.

I executed a bull call spread in chip company Qualcomm (QCOM).