Could The Tech Correction Be Over?
1.) VOLATILITY - In market analysis, volatility is always and everywhere one of the most important elements to follow and understand. Most of the time we talk about VIX, the S&P 500 volatility index. But another volatility index to consider is for tech or the Nasdaq. That index is VXN. Right now, the VXN is near 30, which is elevated. This should not be a huge surprise given big tech earnings coming this week, along with the fact that the Nasdaq has corrected about -6% since the highs on Oct 6th. But now, that index (VXN) is flashing overbought while our vol signal has washed out. Those conditions tend to lead to a drop in volatility. That would also coincide with what Nasdaq futures are showing this morning too.
2.) FUTURES - Right now, Nasdaq (think tech) futures are signaling oversold with the vol signal high and rolling over while flashing a buy signal (picture below). Those conditions tend to signal that the correction is over, or very near so. Add to that the fact that the futures price stopped falling right at the bottom of trend (shaded area), which is the rate of change of price, volume and volatility. These conditions (oversold and a rolling over vol signal) are similar to what we saw at the bottom of the correction at the end of July. Does this mean that tech can't go lower? No. But the weight of the evidence mentioned above plus the fact that we are entering the strongest season within markets (NOV - APR) and the strongest part of the mid-term cycle suggests that there is more to be positive about than negative. We're just are likely to have some bouts of higher volatility until the elections are past.
3.) FEAR - It's often been said that Wall Street climbs a Wall of Worry. That's true. If everyone is euphoric...I'm not! But if there is a lot of fear in the system, I also know that there is a lot of hedging going on. And a well hedged market rarely "boils over". So, for the most part, fear is good. But is fear sometimes "manufactured". Maybe...but how?! Very influential market participants can be a powerful force. Perhaps a big player suggesting there's a money flow problem? Below is an X post from Elon Musk, one of the world's most successful CEO's of some of the most successful companies in the world - SpaceX and Tesla. Is Elon trying to crush his competition? SpaceX is competing for the same AI-compute business, yet he keeps posting about how doomed companies like CoreWeave, Nebius and other neoclouds are. Those stocks have been hammered lately, so an average onlooker could easily agree with the narrative that those are failing operations. But then you start to hear the other cheerleaders hit the TV circuit...guys like Chamath...echoing the same message and talking points. Hmmm...that's Soros-style reflexivity...the narrative hits the stocks, investors get worried, funding gets harder, and the prediction starts creating itself. Oh the games Wall Streeters play. Could those stocks get hurt worse with this kind of narrative floating around? Yes! Could they also violently bounce? Also Yes!
