It’s Technology Stupid

The top 5 stocks in the S&P 500 account for 27% of the index. Year to date, which includes the coronavirus they are up:
  • Apple +30.5%
  • Microsoft +35.7%
  • Amazon +66.7%
  • Google +11.9%
  • Facebook +18.7%
Other top performers in the S&P 500 top 20 include:
  • Tesla +226%
  • NVIDIA +73.8%
  • Netflix +55.3%
  • Adobe +38.7%
  • Paypal +67.8%
Other stocks in the S&P 500 Top 30:
  • Berkshire Hathaway -20%
  • JP Morgan -31%
  • AT&T -19.6%
  • Verizon -7.8%
  • Walt Disney -19.3%
  • Merck -12.9%
  • Coca-Cola -17.1%
  • Pfizer -12.1%
  • ExxonMobil  -36.0%
Point being, if you strip technology out of the S&P 500 you have a sluggish looking market. More like our market, which has only 4% in technology stocks. I wish we had been smart enough to say "Sell everything except technology" on June 12th. Can't have everything. We have declared that we see the Technology sector as a rare growth sector, we did fabulously in the recovery trade phase, but we have missed the last two weeks which has seen the BNPL sector in particular froth up again. We have discussed at length but chosen not to buy into the sector in the middle of a frenzy, as we all know, it is a sentiment rally not a fundamental/value assessment, and we'll look for a better (worse) day to get involved again. It may never happen of course, it may go endlessly higher, but I doubt it. Sentiment is a fickle thing, almost all the stocks are overbought, we can't buy into that. Not on PEs of 50x plus. They are all trading well above intrinsic value, and most are well above the broker target prices. Although as Ben tells me, "When did that ever stop the sector going up". We choose not to buy now. We are not going to compound the mistake of selling them two weeks ago by buying this narrow corridor of stocks in a bubble. But if you hold them, hold them, watch each stock individually, they are mostly very different companies with their own merits but being traded as a bloc by the herd. Watch for the top in each stock. Be prepared to trade them, not love them forever. I hate to be the finger-wagger, being a chicken never makes money, but whereas the ATR as a % of the price for the market is about 2-5%, the ATR as a % of the price is around 10% in each tech stock. It's not safe. We look to buy on a bad day not a hot week.

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