In our post titled THE END OF TECH dated March 26th 2018, we were amongst the first analysts to warn investors about the coming end of the entire super-cycle of technology stocks.
Technology and the wide-ranging application of internet was the story that captured the imagination of investors in the 2010s.
A new breed of technology companies truly revolutionized the way we work, socialize, communicate, advertise, move around, travel, access knowledge and even do politics, transforming us into Nomads, capable of working from everywhere, at anytime, at lower costs and with a global reach.
Coming in an era of peace and globalization, they pulled borders down and unified the world population and diverse cultures in a way that never happened before in the history of humanity and scaled up the size of markets to billions of users and the world population at large.
Over the 10 years during which the longest bull market in US history unfolded, technology stocks were the backbone of the entire secular rally and they captured investors imagination by delivering spectacular growth and spectacular earnings consistently.
Institutional and individual investors made them the core holdings of their portfolios and their valuations rose to stratospheric valuations in the process.
In another post titled SHORTING APPLE INC. published on April 19th 2018, we shocked many of our readers by initiating short positions in an iconic company that would become the first corporation to be worth 1 trillion US dollars in the history of humanity: Apple Inc.
In our Model Portfolio, we started building strategic short positions in a variety of top-notch tech stocks such as Facebook Inc, Netflix, Apple, Microsoft, Adobe, Advanced Micro Device, Google etc..
Our analytical conclusions were that we had reached the stage where the tech dream was ending, that growth and earnings would start plateauing, that the valuation expansion phenomenon had ended and that the extremely high participation of investors in these stocks and their high proportion in global portfolios created an extremely dangerous situation.
On September 20th 2018,The Nasdaq and went into a major secular top and since then, technology stocks and the icons of the 2009 -2018 bull market started falling sharply, surprising a lot of investors.
The recent correction is NOT simply a correction, but THE BEGINNING OF A SECULAR BEAR MARKET in Technology stocks.
The market psychology has been reversed and the technical pattern of the indexes and of most individual stocks indicates clearly that the whole story is over.
Indeed, the market is oversold in the short term and a bounce is likely in the weeks to come, but any rebound will be taken by investors as an opportunity to reduce their exposure and by hedge funds to build their strategic short positions.
A quick review of the charts of the main stocks and indexes says it all …
Nasdaq Composite Index
The three-legged bull market that started in March 2009 ended in September 2018 after a vertical acceleration and a major trend-ending fall in October. The MACD have never been so high and is rolling over.
Nasdaq 100 Index
The picture of the Nasdaq 100 is telling the same story.
Facebook Inc – FB US
The first warning signal came in January 2018 with the Cambridge Analytica scandal and the real top came in August when FB published its Q2 results. Since then, the stock has already lost 35 % of its value and is due of a bounce.
Alphabet Inc. – Google. GOOGL US
The sixfold rise from 2008 to 2018 is ending with a complex top that started in January and was completed by the failed attempt at new highs in September and the sharp fall in October. The MACDs are rolling over.
Netflix – NFLX US
Netflix’s 80 % rise in 2018 was quickly met by a top in August and a lower top in September clearly marking the end of a bull market that started in 2011 and saw the stock rising from US$ 10 to US$ 425.
Microsoft Inc. MSFT US
There again, October price action is NOT a correction but a major bearish reversal marking the end of the entire bull market.
Adobe Inc – ADBE US
Never in the history of stock markets and bubbles have Moving Averages diverged as much as the ones of ADOBE, the company that makes your .pdf software. But October 2018 marks the end of the entire bull phase.
IBM – IBM US
Big Blue has been in a bear market since 2012, having led the recovery in 2009. October confirms the bear market .
Advanced Micro Devices. AMD US
AMD’s recent behavior illustrates the irrational infatuation of investors and analysts with technology stocks. As the company was producing good results, Analysts rushed to catch-up and revise their price targets and investors rushed to BUY indiscriminately pushing the stock price form 10 to 35 in less than two months. The sharp fall in October shows how quickly psychology can reverse itself.
Bear markets have nothing to do with the quality of the underlying companies, which are all great businesses.
They have all to do with a revaluation by investors of. their prospects ahead and the maturing of their own cycle