is this tech’s top?
Technology stocks have really been a surprise winner during the COVID-19 pandemic. The fast move to digitalisation has really benefited the tech led NASDAQ. It would have been hard to predict that the NASDAQ would make fresh highs as the world falters under the paralysis of a pandemic and yet there we go. That’s trading – full of the unexpected. Of course, in hindsight it makes sense, but very hard to have ploughed your way through that furrow.
Has the NASDAQ topped?
I came across an interesting piece on Bloomberg making a case for a NASDAQ top. The rationale is based around the ratio between the NASDAQ 100 and the Russel 2000.The ratio between the two indexes is currently at its highest since the last tech bubble around the turn of the millennium in 2000. It is, at the time of writing, approaching a three standard deviation move from its mean quarterly average since 1985. Take a look at the chart below:
What to do?
The ability to call ‘tops’ is very tricky. The market can remain irrational far longer than you can remain solvent. Look at the rise in Tesla recently. Some bubbles don’t make sense. At one time tulip bulbs could sell for around 10 years of wages. Now you can get a dozen or so for a relatively small amount of cash. However, looking for some key reversal pattens at these levels on the Nasdaq would make sense. Patterns like a Head and Shoulders pattern and double/triple tops could provide an early heads up and, more importantly, a way to quantify your risk.