Momentum Monday – Everybody Out Of The Tech Pool?
Courtesy of Howard Lindzon
Happy Monday everyone.
I will get right to this week’s show. Here you go. The show is embedded below on the blog:
The good news…higher rates are now being factored in. Two months ago it was a global foregone conclusion that rates would never rise again. The other good news is money did not leave stocks, but moved into energy and financials. If rates calm down, that money will seek growth again soon enough.
The bad news…high multiple technology stocks hate the idea of rising rates and were sold hard.
The results?
Many technology leaders and biotech stocks were sold down to their 200 day moving averages where they found some support.
I added some biotech index ETF’s and some Peloton on Friday. Have a listen to the episode for all my reasoning.
On the technology side, standouts through the selling included Google, The Nasdaq, Mastercard, Visa, The CME and The CBOE (I own Google and Mastercard). This is an interesting group of stocks representing spending, trading, and the internet. It makes me feel the selloff is near an end, not just beginning. The next few weeks will reveal much more.
Ivanhoff’s quick thoughts:
The leaders of 2020 – SPACs, software, clean energy, cannabis, biotech stocks have been under heavy pressure for the past few weeks. Many have already experienced 20-50% correction this year. At some point on Friday, the biotech ETF – XBI was down 27% from its 52-week highs. In other words, part of the market has just experienced a pretty significant pullback which might be enough to reset the bases or we just have a new crop of leaders that no one is used to yet.
In the meantime, oil and financial stocks have had their best 4-week stretch in awhile. In fact, they are the reason why the S&P 500 is less than 3% below its all-time highs while the Nasdaq 100 has had a 10% pullback. Energy and financials have underperformed for so many years that few could believe that so many of them were hitting new 52-week highs during the week while the rest of the market was diving. Some say that the market is simply pricing in a quick economic recovery and rising interest rates are benefiting old-economy stocks while hurting new-economy stocks which have been trading at crazy high valuations. I don’t know if this narrative is just a temporary rotation or it’ll stick longer but we can’t ignore price action. I find it hard to believe that any rally can be sustained without the participation of growth stocks but the current facts are that basic material and financial stocks might be the new momentum leaders. I can’t believe I am even thinking that but once in a while there are big narrative changes in the market and we have to be open-minded for the possibilities.
I don’t know if Friday was a near-term bottom but so many stocks had major reversal candles that are a good foundation for at least 1-2 day bounce.
Have a great week.
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