by Jason Bodner

January 11, 2022

Many investors want to know when the painful tech sell-off will stop, or will tech stocks keep falling? 

We’re human, so we crave certainty. But certainty is hard to come by – especially in the uncertain world of investing. The hard truth we all face is that nothing is certain. Well, almost nothing. If you want certainty, go on trial in Japan. It would be a near certainty that you’ll get convicted, as almost all criminal trials in Japan end in a guilty verdict. Japan boasts a 99.9% conviction rate. But that’s not the kind of certainty we’re looking for. We only want to know this: Will tech stocks ever stop falling? 

While there are no certainties in life, perhaps history and current data can point us in the right direction. A quick look at our Big Money Index (BMI) shows money flowing into stocks without stocks going up:

Big Money Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This disconnect is enough to make a stock market junkie queasy.  Here’s the Week #1 performance: Big Money Index Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

As I’ve said before, indexes are one thing; sectors are another. Growth and tech are getting hammered.Big Money Index Table 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The pain points within the S&P 500 are Health Care, Info Tech, and Real Estate, all down 4.6% or more. The latter is in clear reaction to the Fed’s hawkish minutes release. Tech stocks are heavily weighted with growth companies, and Health Care has many tech stocks too, disguised as health businesses.

On the plus side, we see Energy and Financials off to a great start. That’s what’s lifting the BMI higher. For banks and lenders, rate hikes are good news to their bottom lines. The Dow held up pretty well, too.

But looking at the biggest drops of the week it’s clear that growth and tech were hated, even though the semiconductor subsector is loaded with growth companies and healthcare serves as a semi-proxy for tech.   

I think we’re beginning to have a good idea about the next move – as we keep peeling the onion.

Below, we see unusually large buying and selling activity in stocks and ETFs for the past three months:Big Money Stock Buy and Sells Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Financials, Energy, and Industrials were bought while Tech and Healthcare got sold. We also see heavy rotations of money flows in ETFs. A look at the individual ETFs shows the same story: Value, Dividend, Energy, and financials ETFs were snapped up. Bond, China equity, Health, and Tech ETFs were puked.

Below, we see the pie charts of stock buys and sells from last week. It’s the same story in different form:MapSignals Pie Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This data begins to answer the question of whether or not tech stocks will continue to crash.

Let’s look at the details of how tech stocks performed last year:Technology vs XLK Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What’s important is to see that whenever tech selling spiked, it coincided with market bottoms.

Now let’s just zoom in on last week:Technology vs XLK Chart 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The main thing to notice here is that there were zero tech stock buys on Friday.

Check out what happened next – each time (since June 2020) when there were zero tech buys.

Technology Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A day of zero tech buys basically points to double-digit gains in the next 3-to-6 months.

The next chart is a product of our new MAPsignals Oversold Stock Indicator. Simply put, when you see a green dot, there were over 150 sells a day across all stocks. And look what happens when green shows up:

OverSold Stock Indicator Chart

OverSold Stock Indicator Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Once again, buys dominate after heavy selling.

With this data in mind, I’ll ask the question one last time: Will tech stocks continue to crash?

My answer is NO, but no one knows the turnaround point. The data indicates that a bounce is near. But what could make this time different? Let’s talk about fears and Fed policy: Fear and emotion can make us wonder if the latest sell-off might become “the new norm.” It’s easy to buy into the media-stoked fear that the Fed will end QE in March and then raise rates three times, derailing the bull market for stocks.

The minutes from the December 14th-15th FOMC meeting indicate short-term rates rising soon, but not until quantitative easing is unwound. And with the deficit approaching $30 trillion, rates simply can’t go too high. Interest on the debt would eclipse the Defense Department budget. Overly aggressive rate hikes could sink the economy. The Fed won’t tank the economy just to battle inflation that may retreat anyway.

Even if rates rose by a full 2% by end-2023 (which would be huge) – rates would still be near historic lows. The circle indicates where we are now, at 0.00-0.25%. A 2% hike would just take us back to 2019.

FRED Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Common thinking is that if rates go up, growth is harder to achieve. Tech companies that are dependent on financing growth will be in big trouble, because the cost of capital spikes eats into profits. So, sellers are pounding the tech-heavy NASDAQ. That spooks investors into believing the big bad Fed will sink us all. But earnings season is coming soon, in the third week of January, and we may see record earnings.

One last note – on Omicron COVID. The evidence is clear: This is a more contagious, less symptomatic variant. That is precisely what we need to finally tame this pandemic. More people are testing positive at a faster rate in the history of this pandemic. But there are fewer hospitalizations, and far fewer deaths. In short, despite what you may see on the news, this virus is in the normal process of dying out.

When aid, stimulus, and QE finally wind down, and there is no more virus as a headwind, people will have to return to work. Supply chains will thaw, and businesses will be operating at full steam.

As a result of these fundamentals, I think tech stocks will be fine, and now is an opportunity to buy.

“The secret of success is to be ready when your opportunity comes.” – Benjamin Disraeli

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Jerome Powell’s Running of the Bulls

Sector Spotlight by Jason Bodner
Will Tech Stocks Continue to Crash?

View Full Archive
Read Past Issues Here

About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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