Three Reasons Why The Selling In Tech Should Stall

By Michael Reed, Bloomberg Markets Live commentator and analyst

Tech stocks bore the brunt of the selloff in the first week of 2022 trading. This week, either the pain is contained and dip-buyers step in from the sidelines, or there is a greater risk-off contagion that spreads to other sectors (ie. the S&P is ‘only’ down 1.9% YTD). Here are three reasons why the selling could stall:

1. Eyeballing a chart shows us that this year’s apparent allergy to all things tech has really only brought the Nasdaq (-4.5% last week) back to a familiar level of support — one that held in early and late December, demarcating what has been a fairly well defined range since October. We are also at the base of the uptrend that recommenced last March, heading toward oversold territory on the 14-day RSI.

2. The 100-DMA is also pretty interesting, having been an exceptional guide in the recent near-perfect bull run. It’s naturally not been perfect support, but since March/April 2020 (where the initial Covid/lockdown rebound took us back above the 100-DMA), we have seen a daily close below this moving average only 14 times. The largest dip below the 100-DMA was by 2.34% on March 8, 2021, and the average drop a meager 0.91% — Friday’s close was 0.58% below the level.

3. Selling has been very broad: as of Friday’s close, 38 of the Nasdaq 100 single stocks are down 20% or more from their 52 week high; 65 have dropped more than 10% — perhaps sufficient carnage to draw dip buyers given the technical set up.

Naturally, there is the Fed: expectations for higher rates dent the way we assess the value of faster-moving technology companies. Combine this with already eye-wateringly high valuation and latent Covid chip constraints should help explain the latest rout.

Of course, oversold can remain so for prolonged periods, but the above reasons should at least offer some pause for thought.