Stocktake: Tech stocks still look extended after correction
Both bulls and bears can use recent stats to support their investing theses
Tesla head Elon Musk. The company lost a third of its value in a week, but still the stock remained above its 50-day moving average. Photograph: Maja Hitij/Getty
When is a correction not a correction? When is a bear market not a bear market? It’s often said a correction represents a fall of 10 per cent; a bear market, 20 per cent. However, given how extended some technology stocks got recently, those terms aren’t helpful right now.
Tesla, for example, lost a third of its value in a week; that sounds like a serious crash, but the stock remained above its 50-day moving average. Zoom lost more than a quarter of its value but didn’t even come close to breaching its 50-day average. Apple lost a fifth of its value, losing more than $400 billion in market capitalisation in the process; nevertheless, that merely brought the stock, which remained above its 50-day average, back to where it was trading in most of August.
The Nasdaq 100 also closed above its 50-day average, despite falling 10 per cent in just three trading days. The stats reflect just how technically overbought tech stocks had become. That aside, both bulls and bears can use the data to support their investing theses. Bears can argue any sell-off has further to go and that speculative excess is still embedded in market prices; bulls can argue the uptrend remains intact and that this is no more than a routine pull-back in an ongoing rally.