Bulls should be happy there were only 4 days in this week’s five-day span. The Nasdaq 100 did something unprecedented since the collapse of the internet bubble. It fell more than 1% every week. Because Monday was a holiday, it doesn’t count as superlative. Investors caught up in the selloff felt that something had changed.Since the burst of the dot-com bubble in April 2000, there has not been a full week without major down days. The Nasdaq fell another 28% just a year after the market bottomed. “If you look at the two preceding instances, right after 9/11, was a brutal stock market while the other was first in the fall of the tech bubble,” stated George Pearkes, a strategist with Bespoke Investment Group. It’s definitely ominous, doesn’t it?
As what began as an aggressive selloff of speculative corners spread, the Nasdaq 100 fell 7.5% this week. Investor angst over the loss of tech’s growth edge has been intensified by disappointing results from pandemic darlings such as Netflix Inc. There was still room for a pullback, given the stretched valuations. The Nasdaq 100 fell almost 12% in January and is currently on track for its worst month ever since 2008’s global financial crisis. The current streak of 1% declines on a four-day basis is the first since 2018.
Chris Murphy, cohead of the derivatives strategy at Susquehanna International Group, stated that “the last-hour selling” and the consistent selling each morning make it seem like institutions have lost patience and are rushing to get out. As share prices fell, investors appear to have been buying up near-term hedges. CBOE NDX Volatility Index (a measure of cost options linked to the Nasdaq) jumped 8 points in the past four days to 34.06, its highest level since March.
It is difficult to say if this is the beginning of a bottoming or worsening trend. According to Bank of America Corp., the net allocation to technology sector was at its lowest point since 2008. Pearkes from Bespoke stated that “if there’s such a liquidation underway here you have to wonder what further things could fall.” Contrarians see this kind of pervasive negativity, selling as a sign that sentiment has drifted to the downside.
Bulls should be happy there were only 4 days this week, instead of 5. The Nasdaq 100 did something that it hadn’t done in the wake of the internet bubble. It fell more than 1% every week. Because Monday was a holiday, it doesn’t count as superlative. Investors caught up in the selloff felt that something had changed.