If you've followed Dr. Bauer's recent commentary on the tech sector, you'd know that the technology sector is taking a massive hit. But look at the Nasdaq's rally today – up 3.3% - and you'd get the sense that everything has self-corrected. We're heading to new highs? Well, I want to make a case for additional caution. And I want to ensure that you're prepared for what comes next.
| | | | | | | |  Dear No,
If you've followed Dr. Bauer's recent commentary on the tech sector, you'd know that the technology sector is taking a massive hit. But look at the Nasdaq's rally today – up 3.3% – and you'd get the sense that everything has self-corrected. We're heading to new highs?
Well, I want to make a case for additional caution.
And I want to ensure that you're prepared for what comes next.
Oppenheimer Chimes In
This week, Oppenheimer chimed in that it's time to avoid technology stocks. That's always rich when you see these types of reports. It was time to avoid technology stocks when we first started talking about a breakdown in momentum in the markets back around February 11. Since then, we've seen technology move into correction territory.
But I stress one important thing about today's rally and why caution is needed. Tesla is up 10% today, and the stock is the fifth-largest stock by weighted average on the index. Apple (11.2%), Microsoft (9.7%), and Amazon (8.4%) are all rallying. The rally is VERY top heavy.
While mega cap stocks have pushed the markets higher this week, it's the mid-cap, small-cap, and nano-cap stocks that have experienced a breakdown. And in times of momentum, they are typically the first to go.
Several notable tech firms that aren't part of the FAANG club are in correction territory. Tesla is off 33% from its recent highs. But Snowflake is off 21%, Lemonade is off 26%. StitchFix has fallen 30% this year (before today's terrible earnings report), Unity has shed 37%, and C3.ai is off almost 40%.
Avoiding tech is an interesting decision in the short-term. But we know that for the long-term we want to be in technology. That's where the growth and momentum is. I expect that we're going to see a continued exit from technology because of these sharp declines.
But when momentum does return to these stocks, look out. You'll be the first to know when we have the all-clear and we're out of a structural breakdown in the sector.
A Negative Catalyst?
Finally, I want to finish with one more note. This week, the Biden Administration started to recruit some of the biggest critics of Facebook, Amazon, and other Big Tech. We are seeing a lot of antitrust officials who might want to break up these titans over accusations of anticompetitive practices.
I think this "fear" is going to be overblown. And there will likely be significant opportunity to take a contrarian approach to companies like Apple and Facebook, and especially Amazon.
On Apple, I don't see any anticompetitive practice. With Facebook, the worst might be a push to sell its WhatsApp or Instagram powerhouses. Amazon is another beast. The ecommerce giant could face a full-court press to spin off its Amazon Web Services, but this seems low. The bigger question is what they are doing on their platform that makes other companies' products less competitive than Amazon produces.
I expect an investigation into its sales methodology and how it uses client data. If there is a pronounced selloff, I recommend that you use Dollar Cost Averaging to build a position in Amazon. I'll discuss that process tomorrow.
Enjoy your day,
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