Checking In On Tech
Did Michael Burry Kill The Dream?
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Invert, Always Invert.
So said the mathematician Carl Jacobi. In financial markets we can use an easier-to-remember motif, being, It’s Always Opposite Day. Twitter and its antecedents are permanently hysterical about the current trend. If up, it’s going to da moon. If down, it’s going to zero. Well, securities markets aren’t like that. Securities markets are driven by the demand for and supply of the security in question. They move in cycles - upcycles and downcycles. And the two ways to be successful in securities markets are, either, (1) start aged 18 and deploy x% of your income every single month into an S&P500 tracker fund and do your level best to not sell anything - this is the view taken by Buffet, W., and he is not wrong in this regard, and/or (2) learn to read the up- and down-cycles and trade them accordingly. And if you are going to do that, Opposite Day or Inversion ought to be your guide. Doom everywhere? Bullish. Euphoria? Bearish.
Now, trading, it is commonly assumed, is fiendishly complex and only for PhD level types, at least if you plan to be successful at it over the long term (as opposed to just picking the correct YOLO play once in a decade). And certainly you can make it this complex. How to make it complicated? Easy. First, use options not common stocks. Now you have a whole world of Greek pain you have to understand, calculate, predict, every single day in order not just to make a profit but to prevent a loss. The thing about options, unlike stocks, is that they can and frequently do go to zero. Next, use leverage. Borrow money from your broker to buy securities that can and frequently do go to zero. Finally, make it an amount that if you lose (and then have to pay back to your broker), will hurt. And that, ladies, gentlemen and others, is a recipe for pain and suffering of the kind you see all over FinTwit right now.
Here’s a better idea to consider. One, use common stocks, in grownup companies, that tend not to go to zero but sometimes do moon, as in the case of Nvidia NVDA 0.00%↑ , whose direct-ascent trajectory has been rehearsed a couple times now, first with a crypto narrative and now with an AI narrative. Two, if you care to use leverage, do so carefully. Three, learn to read the ebbs and flows of stock prices, for they tend to move not randomly but within recognizable and actionable patterns. No-one, not human, not machine, not cyborg, can spot and act on such patterns perfectly, but everyone can up their game by trying harder.
Generally speaking the overall trend for tech stocks is led by the Nasdaq, and we can use the QQQ 0.00%↑ ETF as a proxy for this. If QQQ is moving up, so too will be most tech stocks. Down, most will be down. This isn’t a daily or weekly correlation but rather a direction-of-travel point to note when considering a multi-month timeframe.
In a moment we’ll take a look at where we see the Nasdaq right now. First, the larger degree, then the smaller degree. And then we’ll take a look at where some of the bellwether stocks in the sector sit.
Relevant to all of this is that today is August options expiry; investors are relatively heavy on puts rather than calls, which means that dealers have sold those puts (= are long the market) and have hedged by being short the underlying instruments. Investors buying puts and dealers shorting the underlying to hedge their put exposure is a combination which works together to push the market down - it has elements of being self-fulfilling. As expiry beckons and hits, dealers have to unwind those hedges by covering the shorts, which can provide a catalyst for a move back up. So it might be that these next couple of trading days form a low.
Anyway. Let’s take a look at the QQQ, NVDA, MSFT, AMD and then for good measure one of the high-growth, high-beta software stocks we cover, being DDOG 0.00%↑ .