Up until this point, we have experienced what I have termed a “stealth bear market”. That is, many of the important but not leading stocks have been beaten down. For example, as Willie Delwiche tweeted yesterday in the chart above, 2/3 of NASDAQ stocks are at least 20% below their all time highs and 40% have been at least cut in half. That is a lot of carnage beneath the surface. ARKK is another example of how important but not leading growth stocks have been crushed.
However, bears have failed to get the to big 7 stocks (AAPL MSFT GOOG/GOOGL AMZN TSLA FB NVDA) with ~$12 trillion in market cap which are therefore propping up the major indexes and masking the weakness beneath the surface. There have been a few days when bears have gotten to them, but not enough to break them down below key technical levels. Wednesday was another such day as you can see in the chart in the tweet above by I. Vodenitcharov.
The Nasdaq-100 ETF (QQQ) is home to these leading mega cap tech stocks and while it experienced a nasty day Wednesday – down 3.07% on big volume – it managed to hold above the key $380 level. Until that level is cracked, the major indexes will not break down.
However, it is my sense with the Fed pivoting to an increasingly hawkish stance regarding inflation and the 10 year treasury yield threatening to breakout above 1.75% that the time has arrived for mega cap tech to break down and end the 13 year bull market dating to March 9, 2009.
Remember that tech stocks are very vulnerable to rising interest rates because a lot of their earnings are in the future. When interest rates rise, the discount rate applied to these future earnings increases reducing their present value. That’s one of the reasons why rising interest rates are such a threat to the US’s tech dominated market indexes.
2022 is happening fast and I don’t think the bear market that I called for at the end of last year is far off. I will be using the next bounce to increase my tech short positions even further in anticipation of QQQ’s break of $380 and the onset of a massive bear market.