If You Like Your Nasdaq, You Can Keep Your Nasdaq

  • The Nasdaq Composite fell nearly 4% yesterday.
  • The fall followed a dire previous week’s performance.
  • The Nazzie is now down 10% since Wednesday and 27% since November’s high.

Good morning on this fine Tuesday.

Well, it’s fine if you dumped your tech stocks a few months ago.

Because, my goodness, is the Nasdaq getting its ass handed to itself.

Two years ago, who didn’t want to be Cathie Wood?

Now, ARKK is bleeding so badly, no one thinks Cathie is in her right mind anymore.

Even incoming Twitter CEO Elon Musk (you have no idea how good that felt to type) has an issue with his other company, Tesla.

That’s not to mention the trouble former King of All Social Media Mark Zuckerberg, Amazon CEO Andy Jassy (Who are ya? Who are ya?), and former Streaming Magnate and current Netflix CEO Reed Hastings are having.

Before you think I’m hanging shit on those guys and gals, let’s be fair.

They had the gonads to pick up the free money when it was available.

It’s sad to say, but one day my kid will ask me, “Dad, what did you do when money was free?”

My unfortunate answer will be, “Son, I was stupid and waited for the sky to fall.”

These people didn’t.

They said, “You wanna give me a billion dollars?  I’ll take it.”

But now, that game is well and truly over.

Well, until we all forget like we did twenty-two years ago when the first dot-com crash happened.

We’ll forget the Fed blew up a bubble.

We’ll forget the pain of the bubble popping.

And we’ll forget that asset inflation is a consequence of asinine money printing.

We always do.

But if my cynical self is correct, the powers that be will be eager to blow up another asset bubble as soon as they think they can.

Remember when Paul Krugman called for the Fed to blow up a housing bubble to replace the dot-com bubble?

No?  Here you go.

But all that’s for another day, far into the future.

Yesterday, the Nazzie got smoked again, so let’s have another look at the tech market.

What the Hell Happened?

The tech market is dragging down everything else.

Since Wednesday, the market’s performance has been nothing short of abysmal.

To make matters worse, the very stocks that were carrying the market are getting crushed.

As you can see from the above chart, every big tech stock except Apple has been down hard since the November high.

And AAPL has exactly covered itself in glory.

NFLX is an abomination lately, down nearly three-quarters.

However, the great news about this is that many of their woke writers are getting fired.

Who knows?  Maybe in a few years, NFLX will produce something worth watching…

As for Cathie Wood, her ARKK has sunk.  The once darling of the tech world has been crushed.

Her biggest – and best performing – holding is TSLA.  That tells you all you need to know.

Well, it was fun while it lasted.

Facebook (Meta… whatever) and NVIDIA have nearly been cut in half.

Even the mighty Amazon is down nearly 40%.

The Correlation With Crypto

Those who thought cryptocurrencies were a great inflation hedge are reconsidering their positions.

As inflation has rocketed, Bitcoin hasn’t.

Sure, you can argue the inflation was already priced in.

But I’m not sure that’s the case.

We can see that the correlation between the Nasdaq and Bitcoin is quite high.

Just to remind you, correlation doesn’t imply causation.

Let me walk you through this chart:

The top candlestick chart is Bitcoin since the covid bottom.

The purple line under it is the Nasdaq Composite, for reference.

The red line under that is the correlation between Bitcoin and the Nazzie.

At 0.81, it’s a high number.

That means when Bitcoin moves down 1%, the Nasdaq will move down – on average – 0.81%.

The blue line at the bottom is the correlation between Bitcoin and the CPI.

It’s 0.61, which is something, but not nearly as much the correlation with the Nasdaq.

This is why you’ll see arguments on CNBC or Twitter financial threads talking about how Bitcoin morphed from a currency into a tech bet.

What this means right now is that Bitcoin is looking poised to head lower, as well.

When Will We Get a Respite?

If I were to guess when the bleeding will stop, I’d imagine somewhere just north of the 10,000 mark.

I did a quick Fibonacci analysis on the market just to get an idea.  This is not science. It’s art.

But it does give us some valuable information as most traders use some sort of Fibonacci analysis.

I did two quick drawings: one from the bottom in 2009 to the top in 2021.  Those are the blue lines.

The red lines are a drawing from the covid bottom in 2020 to the top in 2021.

They have an interesting intersection at 10,365 or so

So a good guess is that the Nasdaq has roughly another 10% down from here.

Do I think that’s the bottom?

For now, perhaps yes.

And there’s a straightforward reason for that.

I just don’t believe Chairman Powell.

I think he’ll poop the bed as he did in early 2019, when he reversed his hiking course and started to cut rates again.

The chart below shows that the 10-year yield has spiked quickly.

And with that, US government debt service costs have increased.

So has corporate debt costs.

And now, mortgage costs have jumped.

Can the country take its medicine for long enough to exorcise the inflation demon, as it did in 1979-1982?

Or will Powell prove a lesser successor to a better chairman in Volcker?

Alas, the balance of probabilities favors the latter.

Wrap Up

Since November, the Nasdaq and most of its big hitters have been smashed to bits.

Though this shows no signs of abating, it simply can’t go on forever.

Remember, the dot-com bubble burst took three full years to run its course.

Here’s the price action from back then:

It was interspersed with furious suckers’ rallies, only to fall again more furiously than the last time.

It finally stopped at the end of 2003, paving the way for a new bull market that lasted until the Financial Crisis of 2008.

So while I don’t think this is the end of the story, I’m not sure the bottom will fall out here.

A 1987 single-day crash, though possible, is unlikely.

My best guess is to wait until we hit 10,365 or so and reevaluate the price action from there.

We’ll be looking at the 8,700 level if we fall through it quickly.

If it bounces, I’d be looking to recapture the 11,450 level.

Hopefully, that gives you some sort of compass for the coming weeks.

Until tomorrow.

All the best,

Sean

 

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