This Week's Nasdaq Sell Off Explained
Fiona Cincotta September 12, 2020 12:40 AM
Is Nasdaq selloff just a natural correction or something more concerning?
To say that the Nasdaq has been volatile would be an understatement.
The Nasdaq is already trading -7% lower so far this month, at the time of writing although this is likely to change as the US markets open. Whilst this sounds like a huge move, and it is a huge move, it is also worth baring in mind that the tech heavy Nasdaq has soared over 38% since April and rallied 9% just last month.
After surging across the coronavirus pandemic, thanks mainly to big moves in the FAANGs (Facebook, Apple, Amazon, Netflix and Google parent Alphabet), the Nasdaq has been witness to some serious swings over the past two weeks which is making investors nervous. The Nasdaq has been led lower by these very same stocks, which dominate in the Nasdaq index.
Natural correction or something more sinister?
The big question is whether this pull back we are seeing is just a natural correction, a pause in a very significant run up, or whether it is a sign of more losses to come?
According to a report in MarketWatch, the first 5 trading days in September should be closely monitored. Dow Jones Market Data reveals that without exception, since 1974, in every instance that the Nasdaq has fallen over 4% in the initial 5 days of trading in September, losses continue across the month. Although its also worth pointing out that this year has been far from business as usual.
On the other hand, these very big successful tech firms have seen a boost from the work from home climate which has accelerated our dependence on tech. Expectations for revenues and profits going forward soared, as did what people were prepared to pay for these stocks, which got out of hand.
It is still too early to tell whether this is just a natural correction or not. The rise in the Nasdaq on Wednesday boosted optimism that the rout could be over. However, Thursday saw the sell off re-ignite, causing concern and today the Nasdaq undecided. Its often prudent to wait for two days of bounce before considering a buy position in these conditions.
What is for sure is that tech stocks overheated and got ahead of themselves. But even with the correction that we saw this month, it is still only a fifth of the speedy run up in the stocks. Broadly speaking when things shoot for the moon they often come back down to earth.
Yet given the fact that the current work from home environment is supportive of these stocks, many investment managers, including those at Goldman Sachs believe this is just a natural pullback with some even predicting that big name tech stock could still end the year above where they are now.
The Nasdaq has ha a tremendous run run up from mid March low of 6637 to 12467 all time high. Since then the sell off has seen a breakthrough 50 SMA at current levels of 11100. It still trades above its 100 sma (10350) and 200 sma (9745). The Nasdaq price is not in oversold territory on the RSI there some more downside is possible.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.