What just happened in tech?
07/28/17

Is big-cap tech getting frothy? That's the question some traders were asking yesterday.

The session began in party mode, with the Nasdaq opening at a record high and S&P's Technology Select Index shooting to levels last seen in April 2000.

"Facebook hits 2 billion users, earnings beat boosts stock," read one headline trumpeting the social-media giant's blowout results.1

"Jeff Bezos is the world's richest person," declared another, chronicling the rise of e-commerce titan Amazon.com (NASDAQ: AMZN).2

"PayPal Hits New High, Then Pulls Back Amid Price Target Hikes," noted another report on the high-flying darling of the cyber-economy.3

But the euphoria didn't last. For reasons that no doubt left many investors scratching their heads, buyers disappeared as lunch hour began and remained scarce well into the afternoon. Many stocks that flirted with new peaks like MasterCard (NYSE: MA), Microsoft (NASDAQ: MSFT), Salesforce.com (NASDAQ: CRM), and Electronic Arts (NASDAQ: EA) closed in the red. Ditto for the broader tech index.

Pundits asked whether too much good news was priced in. After all, they quip, the market is a forward-looking animal that's already sized up nirvana-like conditions.4

Traders shrugged. "Buy the rumor, sell the news." That's their mantra. Tech stocks ran up on hopes of good earnings, and now they've arrived. Don't shoot me, they said, I'm just the messenger.

Nasdaq Volatility Index (VXN) vs S&P Volatility Index (VIX)

Source: OptionsHouse by E*TRADE

At least Facebook (NASDAQ: FB) scraped out a gain for beleaguered tech lovers. Bulls had amassed call options in the House of Zuckerberg leading into its earnings and rang the register as it shot to new highs. Trading remained frenzied on Thursday, pushing total volume in the name to 1.1 million options contracts. It was the busiest session in at least a month and blitzed past usual leader Apple (NASDAQ: AAPL).

That wasn’t the only factoid buzzing in the options pits. Seasoned volatility watchers have listened patiently as every Tom, Dick, and Harry boast about the dreaded fear index being at long-term lows. But they know the VIX isn’t the only chart in town because it only measures sentiment in the S&P 500. The Nasdaq has its own volatility index (VXN), and that one’s been steadily climbing since March.

Bottom line: Stocks are still near record highs, but Thursday’s big swings in tech definitely raised some eyebrows.

 

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1. Marketwatch: Facebook hits 2 billion users, earnings beat boosts stock. 7/26/17.

2. CNBC: Jeff Bezos is the world’s richest person. 7/27/17.

3. Investor's Business Daily: PayPal Hits New High, Then Pulls Back Amid Price Target Hikes. 7/27/17.

4. CNBC: The market risk that makes Nobel laureate Robert Shiller ‘lie awake worrying'. 7/27/17.