JPM Trading Desk: "Short Are Getting Nervous: The Inability Of GOOGL and MSFT to Break This Tape Is Truly Noteworthy"
- Zero Hedge
No one thought that the shares of FAANG + M -- Meta (META) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) , Alphabet (GOOGL) and Microsoft (MSFT) -- could measurably decline without adversely impacting the indexes. But that is exactly what is happening.
Though statistically contra intuitive -- with FAANG +M having such a material weighting in the S&P 500 -- liquidation of the former tech leaders is not having a noticeably adverse impact on the markets.
Indeed the S&P has increased by about 7% for the month of October -- while the walking wounded of large-cap tech continues to disappoint on the earnings front.
What is happening -- and we can see it in positive and improving breadth data -- is that the proceeds of FAANG +M is going into other market sectors (e.g. financials, energy, etc.)
7 Factors Offsetting the Tech Wreck
As to the markets, they broadly are benefiting from a number of factors that have offset the tech wreck:1. Investor sentiment hit an extreme low in early October.
2. The growing belief that global central banks are closer to the end of the tightening cycle. Bank of Canada's less-than-expected rate boost Wednesday was indicative of this.
3. Better-than-feared non-tech earnings.
4. Low hedge fund exposure has created a fear of missing out (FOMO) response as prices began to rise.
5. Hedge funds have been concentrated in the same stocks -- many of which are falling hard. According to Jefferies, value had the second biggest daily move in five years vs. FAANG +M, outperforming by nearly 5%. Also, a basket of crowded hedge fund longs vs. hedge fund shorts had the worst day in year on Wednesday.
6. CTAs have also turned buyers as stocks have climbed.
7. FOMO rises with higher stock prices.
(This commentary originally appeared on Real Money Pro on October 27. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
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