has climbed 20% since Dec. 24, the Nasdaq has outdone it by surging more than 24%. Considering tech has been one of the top contributors to the 10-year bull market, the Nasdaq's recovery suggests equities have reverted back to their long-standing status quo.
Not so fast says Julian Emanuel, the chief equity and derivatives strategist at BTIG. He thinks the Nasdaq — and, by extension, the tech sector — has gotten too stretched for its own good.. An RSI reading exceeding 70 means the market is overbought and a downturn may be imminent and, as you can see, the Nasdaq has been flirting with that level for some time.Going beyond simply technical factors, Emanuel is also troubled by what he sees in the near-term macro landscape.
Since the Treasury yield curve is so closely intertwined with its German counterpart, this doesn't bode well for the US economy as recession worries flare. And as those worries mount, that negative sentiment will be a drag on equities. WeForget the yield curve. Morgan Stanley says investors should be focused on a superior recession signal — one that's threatening to flash by year-end.
By Emanuel's logic, the stocks that have risen the most since recent lows also have the furthest to fall. Which brings him to his bearish outlook for the Nasdaq, which he says could drop as far as 6,600. Considering the index closed at 7,691.52 on Tuesday, that would be a"Given overbought readings, it is unlikely that the US equity market can remain independent of Europe," Emanuel said in a recent client note.
So what are investors to do? Emanuel advises them to identify the Nasdaq stocks that have gotten the most egregiously stretched, then put some downside hedges in place. He calls this especially vulnerable group the"Falling Angels," and it's listed in full below.Intuitive Surgical (
14%? If you own tech stocks, you should be prepared for 20% drops regularly. That’s just science. Actually, I have no scientific basis to say that, but seems right.