Is it Tech Wreck 2.0?
Friday’s sell-off was dramatic. The Nasdaq plunged 4.2%, the S&P 500 fell 2.6%, and the financial media immediately began giving explanations. But after every sharp decline, traders ask the same question:
“Is this just a bad day, or the beginning of something much bigger?“
Video
In ITM parlance:
Is it a big wave or the turn of the tide?
Humans need reasons
It is a very human trait that we seek explanations.
Podcast
Uncertainty makes us uncomfortable, so we naturally look for causes, patterns and stories that help us make sense of events. And we can see amusing examples from the past – for example ‘wind eggs’.
Wind Eggs?
For centuries, one historical explanation for pregnancy was that it was caused by the wind. The theory was obviously wrong, but it solved a problem: people wanted an explanation.
Humans dislike uncertainty. When we don’t know why something happened, we create a story that makes sense – to us.
Financial Media
The financial media often works the same way. Before Friday’s market sell-off had even finished, commentators had already attached it to tariffs, interest rates, AI spending, valuations and a dozen other explanations. Some may be correct. Some may not. But history suggests that markets usually move first and explanations arrive shortly afterwards.
The Ghost of 2000
The ‘TechWreck’ (the bursting of the dot-com bubble) was terrifying for anyone invested at the time. The Nasdaq lost 77% of its value from peak to trough, and it took 15 years (2017) to reach its previous high.
It was predictable in that there was euphoric buying of any stock with a ‘dot com’, even the many internet companies that had little or no revenue, far less profits. Valuations depended on future possibilities, not actual earnings. And that’s what investors were buying: dreams.
Is it different today?
Yes. The leaders (NVIDIA, Microsoft, Alphabet, Meta, Amazon) generate enormous cash flow. Their profits are real, and they dominate global markets. The market may be ‘expensive’ but that is not the same as worthless. Expensive assets can become cheaper. Worthless assets eventually become worthless.
The difference?
In 2000 investors were paying huge prices for companies that might someday make money. Today they are paying huge prices for companies already making mountains of it.
Corrections are normal
I’ve been in the market long enough to have experienced many corrections. They are not pleasant, but they are a fact of life, just like rain and wind. You can’t have sunny days every day.
Let’s put the drop into perspective. Nasdaq has suffered many sharp falls during ongoing bull markets, and pullbacks of 5–10% happen regularly. The thing to note is:
Even larger declines can occur without ending the primary trend.
As in 2013, 2018, 2020 and 2023. All of these were frightening declines that looked disastrous at the time.
Waves & Tides
A wave can be dramatic. It can knock people over. It can dominate the view from the beach.
But waves are not tides.
The tide is the larger trend beneath the surface.
ITM Sanity Checklists
In the final ITM book I did a chapter on sanity checklists – to keep your head when all around were losing theirs. Before you decide that the market is on the brink of disaster ask these questions. When emotions are running high, facts are more useful than forecasts.
- Are earnings collapsing?
- Is unemployment surging?
- Are consumers retreating?
- Are businesses cutting investment?
If not, then this may simply be another large wave.
So what’s going to happen?
Nobody knows whether Friday’s decline will end tomorrow or continue for several weeks. Markets don’t ring a bell at the bottom. But there is a difference between a sharp sell-off and a fundamental change in the investment landscape.
The Tech Wreck was built on hopes and promises. Today’s market is built on some of the most profitable companies the world has ever seen.
That doesn’t guarantee higher prices tomorrow. But it does suggest that a big wave is not necessarily the turn of the tide.
To the markets . . .
Well, I don’t have to tell you how awful Friday was. It was one of the days I don’t look at my accounts – one of my personal sanity savers. Obviously, I follow the market and check the charts – but I avoid looking at the actual dollar figure that I’ve lost. No point in having it seared into your brain and then feel like a failure all weekend.
Funny – last week all the charts were looking nice, nothing really to say about them. Interesting how things can change in an instant. So yes, it was ghastly, but let’s check exactly what we are dealing with here.
SPY Charts
A nasty big red candle – no doubt about that. And our uptrend (green dashes) is looking a bit lonely. I think it has outlived its usefulness. The last time we had a wobble (mid May) there was support around the 730 level (pink dashed line) which may hold. We’ll find out this week.
Notice the high volume – the first above average in almost 2 months. Why? Because fear is a much more visceral emotion that hope. We react more strongly – and dump our shares in a panic.
Longer term, we are still above the trading channel but it looks like it is headed back into it.
SPYG Charts
SPYG also has a big red candle – possible it will find support at the 115 level, we’ll find out this week. And keeping things in perspective, SPYG is only 5% higher than it was in October last year – 5% in 8 months, hardly a bubble.
On the long term chart we see how SPYG has bounced precisely off the upper bound of the trading channel. It constantly surprises me how accurate these lines can be – often, not every time. Always ask ‘what if I’m wrong?’
QQQ Charts
QQQ had a very large drop – 4.2%, showing as a big nasty red candle. Dropping right towards the possible support line we drew in some weeks ago at 700. Will it hold? Possibly. Let’s hope so.
Notice that, like SPY, QQQ has had its first above average volume day in 2 months.
Long term, we see it has dropped back to the upper bound of the trading channel.
VIX Chart (Volatility)
The VIX seems spectacularly unmoved by the drama.
ITMeter
The week ahead . .
After Friday’s sharp decline, traders will be watching closely to see whether the move develops into a deeper correction or proves to be another short-term wave in an ongoing bull market. Inflation remains the dominant market issue and the CPI on Wednesday and PPI on Thursday could heavily influence expectations for future Fed policy.
Oracle and Adobe provide important updates on enterprise technology and AI spending trends.
Monday June 8
• No major U.S. economic reports scheduled.
• Markets will be digesting Friday’s sharp sell-off and assessing whether the weakness continues or attracts buyers.
• Apple’s WWDC conference continues to attract attention from technology investors.
Tuesday June 9
• NFIB Small Business Optimism Index.
• U.S. Trade Balance.
• Existing Home Sales.
• Earnings: J.M. Smucker, Casey’s General Stores, Academy Sports and others.
Wednesday June 10
• Consumer Price Index (CPI) – the most important report of the week.
• Markets will be watching closely for signs that inflation is accelerating again.
• Federal Budget Statement.
• Earnings: Oracle (ORCL). Oracle’s cloud business will be a key focus for investors.
Thursday June 11
• Producer Price Index (PPI).
• Weekly Jobless Claims.
• European Central Bank interest-rate decision.
• Earnings: Adobe (ADBE) and Lennar (LEN). Adobe’s AI strategy remains under the spotlight.
Friday June 12
• University of Michigan Consumer Sentiment Index.
• Inflation expectations component likely to receive close attention.
• Markets will be looking to see whether this week’s inflation data has changed consumer confidence.
The futures
Looking quite bouncy, but it is 11 hours to market open. However they don’t seem to be carrying Friday’s pessimism.
The best-laid plans
I had planned to do this week’s blog on 0DTE – Zero Days to Expiration and how it is skewing the options market. However, after Friday’s drop I thought I had better tackle the current situation head on and see if I could provide some perspective.
Hope it helped!
Heather
Trade the tide, not the waves
Q & A
I think I am up to date in answering questions – but if I have missed any please resubmit them.
3 Responses
Hi Heather,
Have I missed your full thoughts on The Wheel?
Cheers,
R
Hey Heather,
I’m surprised you didn’t mention SpaceX’s IPO this Friday in your latest blog. I wanted to know your thoughts. Thanks!
Hi Tony
Good question. The honest answer is that I haven’t been following the SpaceX IPO closely enough to comment intelligently on it, so I left it out.
As a general rule, I’m always cautious around highly anticipated IPOs. By the time a company reaches the public market, years of growth have often already been captured by founders, venture capitalists and private investors. That doesn’t mean the stock can’t do well, but it does mean expectations are usually very high from day one.
SpaceX is obviously a remarkable company, and its achievements speak for themselves. The question for investors isn’t whether it’s a great company, but whether the IPO price represents good value. As always, price matters.
h