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Tech Stocks May Have Much Further To Fall

By Michael KramerStock MarketsSep 18, 2020 11:39AM ET
www.investing.com/analysis/tech-stocks-may-have-much-further-to-fall-200538053
Tech Stocks May Have Much Further To Fall
By Michael Kramer   |  Sep 18, 2020 11:39AM ET
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This article was written exclusively for Investing.com

The NASDAQ 100 ETF (NASDAQ:QQQ) has dropped by more than 10% since its peak on Sept. 2, and that decline could be about to grow much worse. The options market is getting active again, with some top technology stocks seeing some notable put buying and call selling, and indication traders seeing stocks falling. The last time we witnessed this type of activity was around Aug. 28, just before the market peaked

On Sept. 16, there was a surge in spread transactions across multiple top technology stocks, such as Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT). Traders appeared to be betting that these stocks would head lower from their current prices by the middle of October.

QQQ Daily
QQQ Daily

The technology sector has been one of the hottest in the market, with the NASDAQ 100 ETF up over 60% from its March lows, as valuations hit some of their highest levels in decades. Nothing may epitomize how far valuations have climbed more than the red-hot IPO Snowflake (NYSE:SNOW), which more than doubled on its first day of trading—the stock’s valuation reached about 110 times sales.

Betting Stocks Drop

The open interest levels rose for the Oct. 16, Facebook $270 puts and calls by around 12,000 contracts apiece. The data shows the puts were bought for about $12.55 per contract, while the calls were sold for approximately $13.10 per contract. It creates a bearish spread transaction, which suggests that Facebook is below $270 by the time the expiration date arrives.

A cell
A cell

Additionally, Apple saw a similar spread transaction; this was also for the Oct. 16 expiration. However, for Apple, it was the $115 puts and calls that were traded. With the open interest levels on Sept. 16 rising by about 30,000 apiece. Meanwhile, Microsoft saw a similar transaction take place for expiration on Oct. 16, with the $210 puts and calls rising by around 6,000 contracts each, with the puts bought and the calls sold.

The bear spread transactions suggest someone is either betting these big technology stocks fall, or hedging their long portfolio against a potential decline in the indexes.

Technical Breakdown

From a technical standpoint, a further decline in the QQQ ETF seems possible. The ETF has broken a significant uptrend that has been in place since the beginning of April. That uptrend broke for the first time on Sept. 8; the breaking of that uptrend can signal a significant change in trend for the index. Should the ETF break that support level around $265, it could result in the ETF falling to around $250, dropping up to an additional 7%.

QQQ Daily
QQQ Daily

With the ETF and the NASDAQ 100 index already down so much, it seems hard to imagine that another leg lower is left. However, with valuations for many of these stocks still at very high levels, and the index up dramatically off its low, another leg lower is probably more reasonable than it seems.

Disclaimer: Michael Kramer and the clients of Mott Capital own AAPL and MSFT

Tech Stocks May Have Much Further To Fall
 

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Tech Stocks May Have Much Further To Fall

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Comments (17)
Tom Jones
Tom Jones Sep 21, 2020 4:35AM ET
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Oh man. Between NKLA, Ginsberg and the really bearish technicals, its gonna be bottomless on Monday. Im surprised to see the NASD futures outperforming overnight.
Franc Fil
Franc Fil Sep 21, 2020 3:46AM ET
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QQQ is going to TANK like March 2000!
Gershom Zvi
Gershom Zvi Sep 21, 2020 1:30AM ET
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Coordinated selloff by the majority liberal banks and hedge fund managers. Politics from the left have no boundaries They are trying to remove last Trump archivement strong bullish Market
Maoli Chang
Maoli Chang Sep 21, 2020 1:30AM ET
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This post is dilusional
Zsolt Kovacs
Zsolt Kovacs Sep 20, 2020 5:22PM ET
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I've already written a few times, short after the march low there are 2 big gaps (around 4% each) on the Nasdaq (but on spy and Dow as well) chart. I do not believe, those big gaps remain for ever open... I don't know when, but they will be closed. Watch out!
Indiana Jones
Indiana Jones Sep 20, 2020 5:22PM ET
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Agree that these gaps could easily be filled on QQQ, but a bit less so on SPY and DIA due to sector rotation and tech being used as a source of funds.
Zsolt Kovacs
Zsolt Kovacs Sep 20, 2020 5:22PM ET
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Indiana Jones  I understand your arguments, however I'checked the charts and on the indices I couldn't find "not filled" gaps at all. In case of individual stocks you can find gaps easily, which remained open for ever, but all indices close their gaps at some time. Maybe it takes 1 year, maybe a bit more, but they will be closed. Now, in this case the gaps are around 4% big, so I think, they will be closed more or less the same time, just as they have been made and if so than it means, at some time the tech stocks must fall much bigger - because they've developed a lot more as the others - as the ones in S&p and Dow. This is only a theory and I might be wrong, but....
Felipe Varela
Felipe Varela Sep 18, 2020 8:38PM ET
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Fortunately or not there´s unlimited QE, stimulus in comming, etc. Maybe another leg down but this is a bump on the ride. Refreshing is good you cannot have 5 months straight going up like lalaland...  and If there is a crush is going to be out of the blue when a few bunches of Wallstreet folks get a clean shot first. This downside was very predictable. Vol is incredibly low though..
Fabio falec
falec Sep 18, 2020 8:38PM ET
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Who is telling you that stimulus go straight into the market? Almost unlimited QE have been used already in Japan since 1990 leading the country to an astonishing 236% Debt/GDP. Look at NIKKEI, I do not see a great trend!
Indiana Jones
Indiana Jones Sep 18, 2020 8:38PM ET
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Just another bump on the ride up...or on the much quicker ride further down?
Marcus Vasquez
Marcus Vasquez Sep 18, 2020 6:35PM ET
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I am just trading this day by day, I make on average $3K a week. I don't care which way it goes. I'm just here for the ride. I do know that people should be considering contrarian indicators. All the news is bearish. I have no position in this stock, but I love watching the waves. Typically when news is bearish, there normally a pie in the face, and when news is bullish there a pie in the face.
Vincent Tpk
Vincent Tpk Sep 18, 2020 6:35PM ET
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wow, making good profit. you trading CFD or Option trade ?
Collins Adinda
Collins Adinda Sep 18, 2020 1:04PM ET
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buying Apple when it hits $85
Chris Poulos
Chris Poulos Sep 18, 2020 12:35PM ET
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by year end nasdaq 8k ... its obvious people.
cs sh
cs sh Sep 18, 2020 12:35PM ET
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lol ..
Indiana Jones
Indiana Jones Sep 18, 2020 12:35PM ET
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There is nothing “obvious” in the current market given all the political and vaccine uncertainty, technicals and now add to that Ginsberg.
Ng Chong
Ng Chong Sep 18, 2020 11:32AM ET
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Based on? Betting?
chanwoo jeong
chanwoo jeong Sep 18, 2020 11:18AM ET
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nice try tho
 
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