After a week of stocks grinding upward on relatively low volume, investors & traders are finally starting to participate. We are continuing to see that rotation from the “valuation stretched” tech sector and into some well-positioned cyclical names.
Innovation-driven stocks have been pushed to their limits over the past 5 months. The world economy is digitalizing at a prolific rate, catalyzed by the unprecedented global pandemic that has forced society to rely on technology more than ever. Now that the markets got the Q2 figures that it was anticipating from the tech sector, investors are looking for new (underperforming) areas to put money to work, attempting to squeeze every little cent out of rapid economic recovery that everyone is so sure of.
Today the tech-driven Nasdaq 100 is pulling the broader market down while the value-oriented Dow is staying buoyant amid this market rotation.
Above I have pointed out a few key indicators for the Nasdaq 100, which I drew up utilizing TradingView. The next target level for the Nasdaq 100 is 11,600 (168.1% Fibonacci retracement), which I underlined in red above. The index is trading just over 5% below that level, but this market was quite overbought, which you can see from my oscillators where I circled in blue.
I think we have more room to fall from here, and I have some QQQ (QQQ - Free Report) puts on to hedge my tech-heavy portfolio.
The S&P 500 is remaining relatively resilient amid today’s tech sell-off, and volumes are the highest they’ve been in almost a month, which I have indicated in black above.
This diversified large-cap index is only about 1% off its February all-time highs, despite Q2 GDP seeing its largest decline in modern history and unemployment remaining at its highest level since the great depression in the 30s. The markets are forward-looking vehicles, and right now, investors have baked in a generously rapid recovery.
According to my RSI and Stochastic oscillators, we are hitting overbought territory, and I would be cautious with buying broader market ETFs.
I would be hesitant to put any more money into any of the blown-up tech stocks. I’m personally not a buyer of anything at these overly optimistic levels. Still, if you are itching for some stocks to purchase I would look towards well-positioned banks like Goldman Sachs (GS - Free Report) , utilities such as the high yielding SPDR Utility ETF (XLU - Free Report) , or even home builder like the Toll Brothers (TOL - Free Report) , who has been on a tear today.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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