Rebalancing Before the Next Move
In quite an unprecedented maneuver; the people who run the Nasdaq have chosen to water down the biggest tech components because a few companies are exerting too much power over the index.
In other words, the big fish have gotten so big that the index is adjusting their formula.
This speaks volumes about how great the top 7 tech stocks have performed in 2023.
They have taken off like a runaway train and haven’t looked back.
If this turns out to be a less-than-blockbuster earnings season and the market offers a pullback, it may be the last opportunity of the year to get into high quality tech stocks at a discount.
Selloffs from blue chip tech firms like Netflix (NFLX) signal that a short-term technical cooldown could be in the cards for tech stocks.
NFLX came back to earth, but I want to reiterate that it is more than healthy price action for this stock which started out the year at $300 per share.
The stock exploded to $480 per share and the post-earnings cooldown has found the stock in the $420 per share range.
There are a handful of blue chip tech stocks that I would regard this sort of price action as a mind-blowing opportunity.
Another reason for a short-term cooldown is the aforementioned reformulation of the Nasdaq index.
The tech-based index - Nasdaq 100 gets tracked by a slew of funds.
They include the Invesco QQQ Trust (QQQ), the world’s fifth-largest exchange-traded fund (ETF), according to Morningstar.
Nasdaq announced that the Nasdaq 100 index will undergo a "special rebalance" that will come into effect today.
The index is typically rebalanced each quarter, but outside of that, it can employ a special rebalance to address overconcentration in the index by redistributing the weights.
While the organizers have been mum on the technical about the rebalancing, the index's methodology says that it can be adjusted if companies with weightings that exceed 4.5% of the index together make up more than 48% of the index.
This technical maneuver underscores the attractiveness of these tech businesses and compelling investment opportunities relative to other areas.
The result has been increased investor attention and enthusiasm for tech stocks now — at the expense of other sectors, he says.
Investors of funds tracking the Nasdaq 100 Index woke up today with a different portfolio.
Most investors in U.S. stocks will be at least indirectly affected by the rebalance.
That's because "billions of dollars of stock" will be traded as funds tracking the Nasdaq 100 buy and sell in response to the rebalancing.
During this short-term rebalancing phase, I can easily visualize a convenient time for investors to reload their ammunition. Load up the bullets before we are off to the races again.
Heading into the last 4 months of the year, the US consumer is strong as steel and I would beg any black swan to show their ugly face and try to topple this kryptonite tech market.
An orderly dip in tech stocks this earnings season would represent nothing more than a massive victory and if it’s sideways then watch up to the upside.
I would even say there is a higher risk that dip buyers get a little impatient and pull the trigger a little early just to make sure they get some skin in the game for the next elevator up.
That’s how hot tech has been.
