The scary signal in the charts of Zoom, Peloton,
Amazon, and Dominos
What's going on right now with the hottest quarantine stocks? Their charts are sending a disturbing signal. It appears that they're rolling over, with nearly all of them backing off 10%+ from their recent highs.
But you wouldn't know it by looking at how the 4 major stock averages, at or near all time highs; Dow, S&P 500, NASDAQ, and Russell 2000 (small cap stock index). The averages are masking the deterioration in individual stocks.
Is this a sort of early warning alert to investors that have piled into the hot "work from home/stay at home" stocks? Tough to say. But it does remind me of another era that I lived through; the tech wreck of 2000. The NASDAQ plunged 80%. It was a bloodbath that spared no tech stocks. The hot stocks of the day; JDS Uniphase, Lucent, WorldCom, Qwest, and many others aren't even remembered anymore. But at that time, they were part of the new paradigm that was called the internet. Funny thing is that the internet kept growing by leaps and bounds, which didn't help internet stocks one iota. It took about 15 years for Microsoft to recover to its former high. Could you imagine today's Robinhood investors waiting 15 years to just to get back to even? I can't either. Hey, not knocking you Robinhoodies! It's just that I was there when I was your age and it totally sucked. However, I am knocking you country club seniors in Southern FL, because 20 years ago, you got carried away and paid dearly for it. I promise you that you are mistaking brains for a bull market, again.
I understand the temptation to be in these stocks. Making quick profits could quicken your ability to meet your financial goals and give you a little extra financial cushion. It's addictive for many. I have some of the hot stocks in client portfolios. Big ones like Amazon, Facebook, Google, Microsoft, and others. Hey, tech and communications makes up nearly 40% of the S&P 500, so it's not really possible to exclude them. But my experience guides my decision to reduce size along the way up. It could be more or less, depending on the client's risk tolerance and time horizon to their goals. I also know from experience that the big ones will go down too if the sector collapses. They'll just be the last to go down. There are two times when investors throw diversification out the window; during bull markets and bear markets.
Now, many investors in today's hottest stocks are wondering if they should sell.
Early investors in these hot stocks want to sell now to protect their profits. This creates a stampede to the exit. Does this mean that these stocks can't reverse and head back up to new highs? No.
But the circumstances that led to their ascendance, the closing of the economy due to the pandemic, is changing. Investors must always consider that the only thing that stays the same is change.
Check out this video snippet from my live stream that was all about this. I show you the charts and graphs that I'm looking at.
