(Bloomberg) – There are more signs of potential trouble for high-flying tech stocks, this time around indicators of expected volatility.
One alert comes from the widest spread since 2004 between the Cboe NDX volatility index, a measure of the implied capital swings for the Nasdaq-100, and the counterparty called the “fear indicator” for the S&P 500. Another comes from earnings. Unusual concurrency in the Tech Index and the NDX recently.
This sharp exchange rate in the relationship between the two volatility indices tends to correspond to an absolute and relative underperformance of the Nasdaq 100, particularly over three months, according to Julian Emanuel, head of equity and derivatives strategy at BTIG LLC.
The surge in megacap tech companies led the stimulus-driven recovery in US equities since the March lows, an escalation that resisted lingering concerns about the long-term economic impact of the growing Covid-19 cases. The Nasdaq-100 is up 22% year-to-date through July 14, while the S&P 500 is still down 1%, and the question now is whether tech stocks will maintain their lead.
At one point, on July 13, the Nasdaq-100 rose 1%, while the Cboe NDX volatility index rose 8%, a situation that has never happened before, according to Jason Goepfert, president of Sundial Capital Research Inc And as of 10:30 am in New York on July 15, both indicators were positive for the second consecutive day.
The fact that option traders are pricing in increased volatility despite record highs for the Nasdaq is one reason for the “caution,” Goepfert wrote in a note, as was the reversal that the move finally left. technology in red on Monday.
Tallbacken Capital Advisors LLC CEO Michael Purves recommends hedging using put options in the Technology Selection Sector SPDR Fund after recent gains in the sector.
Investors may be guilty of “short-term complacency” before the second-quarter earnings seasons, Purves wrote in a note.
(Update the markets in the fourth and fifth paragraphs).
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