Tech’s Bloodbath Unpacked
In medieval times, a tiny torture device called a thumbscrew was widely used to extract confessions from prisoners.
The implement was usually nothing more than a simple vice clamped to a victim’s fingers or toes, “sometimes lined with sharp metal points to puncture the thumbs and inflict greater pain in the nail beds,” Wikipedia explains.
Of course, your local police department won’t smash your thumbs over an unpaid parking ticket these days.
But if you yearn to feel crushing pain in your extremities, you can always fire up your favorite finance site and watch tech stocks implode…
Where’d It All Go Wrong?
High-momentum tech stocks accelerated their earnings season slump Monday, dragging some of the market’s most popular plays deep into the red.
The tech-heavy Nasdaq coughed up more than 100 points to finish the day lower by more than 1.4%.
Meanwhile, the FANG carnage continued as Netflix led the drop with a loss of almost 6% on the day. The group is now down a painful 9% since Facebook’s earnings fiasco last week, Bloomberg notes.
And now the market is heading into a potentially volatile August as bulls and bears fight for control. This action is kicking off early as we wrap up July’s trading.
So far, momentum and tech names are the main victims, but the selling could spread to other stocks and subsectors.
With all the political and market-related noise clouding our view these days, you might not remember this drop isn’t the FANGs’ first faceplant of the summer. We witnessed tortuous FANG carnage in late June too, when Netflix (again) led the tech darlings lower with a 6% slide.
At the time, I noted it was normal to see hard resets in strong names like Netflix. After all, the stock was still up triple digits on the year. The market’s most important job is to keep folks honest. Traders can’t expect to book outsized gains in momentum stocks without having to endure a little pain along the way.
The same holds true for the corrections we’re seeing in these stocks now. Yes, the recent carnage was swift and brutal. But we certainly haven’t seen any outright panic yet.
Why Now’s the Worst Time to Bail on Tech
The truth is many tech stocks are still outperforming for the year. Facebook and Netflix may face future growth problems as new user numbers plateau, but many tech plays have plenty life left.
Amazon, almost daily it seems, announces a new plan to further dominate the world. This includes a reported foray into health care and potentially a new auto sales division.
Add on a positive report from Apple today and the tech sector could be right back to where it was two weeks ago… flying high.
Long term, there’s still plenty to like too.
The ever-increasing amount of growth trends we see in tech will be incredibly lucrative. This includes high-growth industries like artificial intelligence, driverless cars, augmented and virtual reality, as well as blockchain and others.
Will traders ditch their red-hot tech shares and finally pivot their money elsewhere?
If they do, it could be a big mistake.
Yes, some tech stocks may have reached their ceilings. On the other hand, many other tech plays are just warming up.
The important thing to do now is be selective. Betting purely on speculation is a more dangerous game today than it was a year ago for tech stocks.
The key to success with your tech plays now is to rein in over-speculative betting and instead hinge more on companies reporting solid revenue and/or measurables.
Growth catalysts still matter, but as the money rotates, the classic fundamentals will come more into play.
For Technology Profits Daily,
Chief Investment Expert