The Death Of The Nasdaq?

| April 16, 2014 | 0 Comments

Unless you’ve been hiding under a rock for the last couple weeks, you probably noticed the substantial pullback in the Nasdaq.  Well, the pullback has impacted all the major indices, but Nasdaq stocks have been hit significantly harder than the others.

Over the last week, the Nasdaq-100 index is down over 4%.  The index is over 7% off the 52-week high and is currently down nearly 3% year-to-date.  The selloff has been led by Internet and biotech stocks – which investors are fleeing from in droves.

So what gives?

Unlike past selloffs, where it may be easy to pinpoint a direct catalyst for the action, there aren’t any clear reasons for the downward move.  There’s not a particular macro event or economic report sparking the selling.

In fact, domestic economic news has been almost entirely positive lately.  And while geopolitical risk is high, there’s nothing overly worrisome going on in terms of US equities risk.

This selloff is more of a rotation out of certain types of stocks and into other assets and sectors.  Basically, as I mentioned earlier, Internet and biotech stocks are getting hit hardest. 

Traditionally safer sectors are doing quite a bit better (utilities up 1.5% over the past month, energy stocks are up 3.5%).  Safe-haven investments, such as gold and bonds, are also moving higher since last week.

So if there’s nothing definitive causing this flight to safety, why is it occurring?  At least part of the reason is because big players have decided to cash in on gains.

You see, several of 2013’s biggest winners (the momentum stocks) have gotten crushed lately.  Many investors who made nice gains off those particular names have decided to take their profits off the table.

And once the big money starts moving, the rest of the action becomes a self-fulfilling prophecy. 

As large funds and insiders take gains, other investors get worried and follow suit.  This becomes a downward spiral until all the sellers are out of the market.  And, that’s exactly what we’re seeing occur in tech and biotech (which are primarily listed on the Nasdaq).

In other words, Nasdaq stocks will be fine once this selling runs its course

This is more technical selling than fundamental.  As such, it could provide some excellent entry points into certain Nasdaq stocks, or an ETF on the Nasdaq-100 itself.

Let the sellers have their day – and then don’t be afraid to buy the best-in-class Nasdaq stocks at dirt cheap prices.

Yours in Profit,

Gordon Lewis

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Category: Stocks

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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