It’s been nothing but cloudy skies for the cloud computing space, allowing traders to play the bearish side of the technology sub-sector.
Even before cloud computing gained increased popularity during the height of the pandemic in 2020, the space was already seeing strength. More companies were moving their operations to internet-based applications powered by cloud computing platforms.
Big tech companies like Amazon and Microsoft were leveraging cloud computing technology to power their core operations. That only proliferated during the pandemic as more companies were forced to use cloud computing in order for remote work employees to access applications and interact with co-workers.
However, a confluence of events is starting to push cloud computing out of favor for investors. As the economy starts to re-open again despite rising COVID cases, the need for cloud computing may have weakened.
The ISE CTA Cloud Computing Index has fallen about 8% within the past few months. In addition to the economy re-opening, the Federal Reserve is looking to raise interest rates aggressively in 2022, which may hamper growth for cloud computing.
“The slump, which started in November and deepened this week, is part market rotation, part economy reopening from the pandemic, and part concern that the Federal Reserve’s expected interest rate hikes will have an outsized impact on this particular sector,” CNBC notes.
“Higher interest rates can spell challenges for much of the market, but they represent a notable roadblock for cloud stocks, especially for companies that aren’t making money yet,” CNBC adds.
Profiting From a Cloud Bearishness
As bearishness permeates in the cloud computing space, one way to capture the downtrend and profit is the Daily Cloud Computing Bull and Bear 2X Shares ETFs (CLDS). The fund is up 26% within the past three months, underscoring the bearish sentiment in the industry.
The fund seeks to achieve 200%, or 200% of the inverse, of the daily performance of the Indxx USA Cloud Computing Index. The index includes domestic companies that deliver cloud computing infrastructure.
“Across the basket, the cloud industry and software holistically has just been hammered,” said Byron Deeter, a venture capitalist at Bessemer. “Fundamentally these businesses remain the drivers of the new economy, and we have to remember that all of those trends that people were excited about a year ago in the 2020 market, when this basket returned almost 100%, those remain today.”
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