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The tech sell-off that had been picking up speed for the past month stopped in a hurry Wednesday – seems all it took was a peek at tame Fed inflation data to put investors back in the buying mood.
By midday yesterday, the tech-heavy Nasdaq Composite was up more than 6% from its Monday low of 12,609, paring its one-month decline to just under 5%; there's every reason to think that decline will shrink even more as today's session finishes up.
But here's the thing…
I'm looking at the Nasdaq Arms Index right now, which measures market breadth by volume – you divide the ratio of the number of advancing stocks to sinking stocks by the ratio of the volume of advancers to the volume of decliners.
But you don't need to worry about that math. The index reading right now is 0.477; a lot of Wall Street pros would call that "panic buying," but these days most people would call it "FOMO" – fear of missing out.
Investors are hopping on the bandwagon, but I don't think the ride's going to end well.
Will tech ultimately recover and move back into a leadership role? Sure.
Is that happening right now, today? Doubt it.
It can be great to be early, but you can also be too early. Here's what I suggest…
Don't Worry If You Missed Out
What a day…
You had Tesla Inc. (NASDAQ: TSLA), which had lost something like 40% of its value since the end of January, blasting ahead 100 points – its biggest single-day gain in more than a year.
Those stocks are worth $4.3 trillion all together, and they took off like a shot, just like that.
Talk about trying to hop a speeding freight train – this was like trying to jump one of those 200-mile-an-hour bullet trains they've got in Japan. The Wednesday-Thursday rally on the Nasdaq was so fast and so unexpected that a lot of investors didn't really have time to jump.
If you had been "buying the dip," more power to you – but buckle up. If you did happen to miss your entry, I've got good news for you.
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I don't think the selling is over. That's because I think the market is still strongly keying in on interest rates and inflation; higher (but historically, still low) interest rates helped spark the sell-off in the first place, and lower-than-anticipated inflation provoked this violent "gap up" rally we're seeing.
For better or worse, the market is moving to that interest rate/inflation "narrative," and we've got no choice but to go along with it. But we don't have to buy it.
What we've seen are retail investors and bargain hunters in action, but institutional volume is still fairly muted – they're not really buying here in any serious way, because they can see what I'm telling you right now: The market might be done with interest rates and inflation for the moment, but interest rates and inflation aren't done with the market.
I believe this rally we're seeing now will turn over and we'll see selling come back in a big way.
When we do get a 10% or 15% sell-off that sticks, I think we'll see more institutions come out of the woodwork – bargain hunters, sure, but with way more firepower than what's driving the Nasdaq right now.
Until then, be really careful about your tech investments, and protect what you do have with stops. Don't go chasing flashy SPACs, new IPOs, or any long-shot trades. When the selling comes back, you'll get even better chances to buy Apple, Microsoft, and so on, at actual bargain prices. Consider buying puts on the Invesco QQQ Trust ETF (NASDAQ: QQQ), which tracks the Nasdaq's performance, expiring about a month out, like the QQQ April 9, 2021 $290 puts – a 10% or 15% decline in the Big Tech index by then is looking more and more likely.
A lot of overeager investors could very well get burned by what the Nasdaq does in the next few days; a lot of people have watched a lot of hard-earned money evaporate when markets go south. But I've been able to collect thousands per week, developing the ultimate indicator. I've used it to identify the moves big players make quietly, which can put me in the know long before others catch on. Let me show you how it could be possible to turn all kinds of market conditions into profits.
About the Author
Andrew Keene, editor of the 1450 Club, Super Options, and Project 303 at Money Map Press, is a globally known trader and a renowned expert on all things options.