Tech still not a bargain

August 15, 20236 Comments

The technology sector, driven by the AI hype since early this year, has taken a step back over the past month. Given the hope of a softer Fed policy now, is there opportunity in the sector? Should we be buying technology stocks now that they have retreated in price?

The relative performance chart below (20 days of trading) shows us how markets have rotated out of the tech sector and the discretionary sector (which contain some of the old school tech stocks). My rule in sector rotation (please see my online course) to wait for a bearish rotation (comparative relative strength shift) to end, and a move back into a given sector before buying. This performance chart suggests the relative weakness in tech is early yet.

The NASDAQ, being the tech-heavy composite, is looking weak. Note the price momentum studies beneath the chart, and the very recent break of the 50 day (10 week) SMA. Top pane is moneyflow momentum, which is also showing signs of momentum changes. If moneyflow momentum continues down, it can lead into bigger corrections – per the lead-in during December 2021.

Same look for the tech index itself (XLK-US). The 50-day SMA has been broken to a greater degree in the XLK ETF. My target (as noted in the most recent newsletter) remains for the SPX to reach somewhere in the 4200-4300 area. XLK may toy with the low $150’s before the song is over. I have felt all along that it would be the tech sector that would lead that correction.

Speaking of Moneyflow.

NVDA block order flow suggests “Smart Money” is leaving–big block trades (institutions) yellow line. Meanwhile, “Dumb Money” / retail is largely still in the trade.

The F-word

Ah, fundamentals. Not my bag, but still – they must be respected. Fundamentally, none of the leading tech stocks are cheap. AI poster-boy NVDA takes the cake. Take a look at the current (Aug 14, 2023) Price/Sale ratio’s and compare them to their historic levels. Note that the left side of the chart is 1999. For us old dogs trading during those days, you’ll recall the parabolic moves and extended valuations of the tech’s. Note that AMZN in this select group was the poster-boy back then (green). Now its the cheap stock of the group! AMZN is passing the “overbought baton” to NVDA. Also– MSFT & AAPL are MORE expensive now than in 1999!

Conclusion

Don’t get me wrong. These stocks remain the drivers of the economy, at least at this moment of time they do. And that will reflect in their price action over time. But that doesn’t mean they are at an entry point today! Technically, seasonally, fundamentally, and Smart/Dumb money evidence suggests more potential downside. Nothing is absolute, but the odds are skewed against them for now.

A pullback could be opportunistic – for both the tech stocks AND the tech-heavy SPX. Of note, we may get an interim pop in the very near-term (1-2 weeks). Or not. That stuff is normal if it happens. But I’m not convinced such a pop, if it happens, will last too long. As such, ValueTrend holds a good chunk of cash (about 25%) and lots of non-tech sectors within our VT Equity Platform. We are keeping an eye on chart support zones in the coming month or two for opportunities to deploy capital.

Happy trading!

6 Comments

  • It’s revealing that too often the conversation on TV and written media revolves around why stock so-and-so will be going up for so-and-so macro and micro reasons, much like the talk about OceanGate’s Titan was about it having more and more success and admiration.Nobody talked about the risks or probabilities of Titan’s collapse, and if trained, experienced eyes blew the whistle on the potential pitfalls. those were silenced and placed conveniently under the rug. Quite simply, as per Benjamin Graham’s lessons, we should talk as much or more why the majority of stocks will go sideways or drop, as concentration of wealth in a few hands, the political state did the World, simply is against exploitation in a zero-sum game. With climate change destroying Maui, NWT, many regions in NWT and BC and Quebec, with oceans treated as dumping grounds, soon there will be an acceleration of this tendency against unbridled Capitalism.

    Reply
    • Your comment doesn’t really tie into this blog (aka why tech stocks will sell off a bit more)–but I might suggest: We need to be careful with drawing conclusions – such as the fires being related to climate change. Eg- Its recently been disclosed (although certainly not promoted by Trudeau’s legacy media) that the entirely of the fires in BC were human caused -there have been charges laid. Alberta’s fires were overwhelmingly started by arsonists as well according to some data coming out of that province – there have been charges by the RCMP. Also in Yellowknife–4 have been charged. I recently read the same thing for Hawaii. I can’t help but wonder if this is an orchestrated collaboration by far-left WEF -“Reset” believers who want to create evidence that backs their climate narrative?
      Anyhow, gotta go eat some bugs, own nothing, and be happy for it.

      Reply
      • Even some climate scientists have said wildfires have nothing to do with ‘climate change’… whatever that is. Of course the climate changes. It has been changing since the beginning of time. My ancestors were farmers who told stories of prairie fires for generations , long before O&G had the opportunity to ‘destroy’ the climate.

        I hope these arsonists are held to account by the courts. People driven from their homes, unable to work or earn income, and fighting for compensation from insurers, tens of thousands of animals killed, elderly and kids unable to breathe. I hope the arsonists get sentences that discourage others from torching the natural world they claim to love.

        Reply
    • You come to an investing blog to attack capitalism? Why would you even be reading this if you blame free markets for all the world’s ills? Or are you one of those people who benefits immensely from the system, has discretionary capital to invest, and now wants to deny the same opportunities to others?

      In fact, free market capitalism has lifted most of the world’s poorest out of starvation in the past 30 years.

      Reply
      • Hey Paula–this individual is posting for the first time, and is like many trolls on the internet, they try to get their messages posted to spread their beliefs, or just to start an argument. They are not actually interested in the subject of the blog. Most of the time I delete / trash the comments so you never get to see these types of posts, which are always promoting left wing extremism. I elected to post this one because the individual is clearly a person who either trolls on behalf of the WEF with the Great Reset propaganda as his agenda – which involves the demise of capitalism and instigation of centralized government controls to limit our freedom with climate action, COVID protocols, centralized trackable currency, and wealth equalization as the backdrop. You’ve probably read their “You will own nothing and be happier” message.
        ….Or he is a very uninformed person–Either way, it was an opportunity to post some reality behind the fire situation for me, so I took it.

        Reply
  • I appreciate it, Keith. We have to keep calling them out on this nonsense. So bizarre that they blame capitalism for all the world’s problems when it’s capitalism that’s enabled them to be in a position to make that ridiculous claim. Some geopolitical analysts say that globalization is in decline as evidenced by the US pulling back from patrolling international trade routes, and increasing nationalism and protectionist policies in western countries. I hope they’re right.

    Reply

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