Posted this on another sub, and we got some good discussion going, so thought we start the conversation here too.
So this is all my opinion obviously - no one knows exactly why the tech sector took a big poop today, but what we can do is analyze the market and figure out what could have caused this to better hedge (or diversify) ourselves for next time. If you don't want to read this wall of text that follows, you can watch the video here: https://youtu.be/j42b76Ugso8
1) Profit Taking - it's almost the end of the year, and stocks have had a great year thus far, especially tech stocks. Some like $NVDA are up about 100% on the year. Some like $MU are up even more than 100%. Going into the Holiday season, a lot of investors (especially the big boys) tend to take time off, travel, spend time with family and friends, etc - but they want to rest easy and thus start scaling out their positions. I'll admit it's a bit early for this, but if a few of the big players decided to sell today, it could have triggered a bunch of algos to sell as well, causing the big "panic sell" that happened which caused a lot of stocks to drop 5%, 10% or more.
2) Sector Rotation - this happens every once in a while. Back in June we had a day where tech had a big drop (similar to today), and we saw financials start to rally on big volume. A lot of investors (again, the big boys), took their money out of tech and put it into financials as there was a lot of good news surrounding banks at the time. I believe something similar happened today - if you look at the volume on the QQQ (nasdaq) and XLF (financials), you can see they both had a very heavy volume day. QQQ to the downside, and XLF to the upside - in fact XLF even gapped up at open and made new highs. But if you dig a bit deeper, you can see that there was a lot of bullish action in XLF and in tech (both QQQ and individual picks) for longer term calls - so this leads me to think that it was just a investors taking money from tech, and putting it into financials, and then when investors who focus on tech stocks saw this dip, they picked up huge call blocks on tech stocks as well (because fundamentally, nothing changed with any of the tech companies to justify this big of a drop).
3) Tax Reform Vote - this ties in with my previous point. Banks would benefit greatly from a tax reform, and the "big boys" threw a lot of money into financial stocks and XLF in preparation for this vote to be a success and have it pass. I think this, in combination with the 2nd and 1st point is most likely what happened today as we prepare for the big vote tomorrow. This was essentially the market pricing in tomorrow's decision in anticipation of it passing. But once again fundamentally, this doesn't really affect Tech stocks in particular (if anything, if the bill fails, it affects all stocks, so all sectors should have dropped today).
I also found it funny how the DOW made new ATH today. All the more reason I believe this was just a temporary shakeout, and we will be back to ATH in the near future. For me personally, I went from about 90% cash, to about 5% cash, as there were too many opportunities to pass up on. I believe fundamentally we are still strong, and that this dip is temporary. But please do your own DD as well! Happy investing :)
Submitted November 29, 2017 at 11:42PM by blackdragon1299 http://ift.tt/2ioUVok
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