Tech Wreck

Last week, Tech stocks were bludgeoned for the worst weekly loss since March 2020. Subsequently, this week there has been a two day bounce. Which means last week never happened...

Here we see via the weekly chart of the Tech sector, that this is how the March 2020 decline began. A big down week followed by a bounce and then the third week explosion lower. The oversold bounce in 2020 started to rollover at the middle of the week, which left an ominous doji on the weekly:

Per usual, no pundit is allowed to see it coming. So the prevailing opinion is that this is merely a "correction" in an ongoing bull market. There are reasons to believe otherwise.

Let's discuss the bull case. This week kicks off the heaviest week of Tech earnings. It's true that Tech earnings for Q4 which were released in January were a catalyst for a big move higher. It's also true that mega Tech is expected to have the strongest earnings of any sector.

The two biggest outperformers in the last quarter were Meta and of course Nvidia.

Here we see the Tech sector daily chart with earnings overlay. What we see is that when Meta released their earnings, which by the way are due again tomorrow (Wednesday) evening, the entire Tech sector rallied for several days, but then imploded back to the origin of the rally. Then along came Nvidia which gave the market a much bigger rocket ride higher. However, here we are again having retraced ALL of Q4 gains, as if they never happened. So, entering Q1 earnings, bulls are right now...

Dick in hand:

Something I pointed out on Twitter is that this entire decline sequence is similar to Y2K in that the Dow tanked first, followed by Tech, followed by everything at the same time. The Dow actually bottomed last Wednesday, which makes this day 4 Dow rally, right back to the 50 day moving average. Today we got bad economic news which was catalyst for today's rally. I have said it many times, and I will repeat it again - this reflexive panic buying of bad economic news is doomed to end badly for anyone who believes recession is good news for stocks. You have to look past the pandemic at long-term history to know that lower Fed interest rates has attended lower stock prices six out of seven rate cutting cycles in forty years.

What rescued the stock market in 2023 was an increasingly manic rotation to Tech stocks and away from cyclicals as the AI bubble and rate cut expectations fueled Y2K 2.0. This year, we are on the other side of that bubble. Which means that we are about to find out what happens when the entire market implodes at the same time. Here we see that regional banks are lower than 2022 and semiconductors are far more overbought than 2022. Which means that this bear market will make that long forgotten one seem like a good time.

If we use 2022 as a baseline, what we see now is that there is absolutely zero fear in the market. Every selloff in 2022 saw VIX above 35 and the biggest spike came on the first break of the 200 day moving average. Which clearly shows that investors are not taking this selloff seriously.

In summary, if you are a Tech bull, you have to ask yourself the artificially intelligent question - how many potential investors haven't already heard of AI?

Because if more fools are not found sooner than later, then it means the last fool is the one in the mirror.