Thinking About Selling Your Tech Stocks?

Leading tech stocks suffered a huge downside reversal Friday. Bears are thrilled. Many feel vindicated.

Despite Friday’s drubbing, which spilled over into Monday’s trading session, tech is still up big this year. In fact, the technology-heavy Nasdaq has led for the last four years.

But bears don’t care. They are vested in the idea that tech is overpriced. Higher share prices just strengthen their resolve.

Unfortunately, they are breaking the most-important rules … 

Markets are never wrong. Opinions often are.

This is something most investors learn the hard way. Jesse Livermore is widely considered the father of modern speculation. As the perhaps the most-prominent trader of the first three decades of the last century, he understood the importance of following trends — and letting the markets pick the winners and losers.

Many of the strategies we take for granted today are lessons learned and explained, sometimes painfully, by Livermore.

For years, bears have loved to hate graphics chip-maker Nvidia (NVDA). With the stock trading at $106 at the end of December 2016, MarketWatch reported a 60% spike in the number of shares that short-sellers borrowed. It even highlighted the notes of one famed short-seller. His price target was $90.

On Friday, shares of the semiconductor savant swung 6.4% lower. Trading volume swelled to four times the daily average. Bears finally had something to cheer about. Except the closing price was $149.60. In fact, shares have not traded below $95 in 2017.

NVDA fell 6.4% Friday, and continued to drop in early Monday trade.

No matter, bears warn: Demand for chips could plunge.

On Friday, I came across a note in my Twitter feed. Jim Rogers is predicting the worst crash in our lifetime. Rogers is rich and clever. He also knows how to turn a phrase, so he’s often quoted in the media.

“[The crash] going to be the biggest in my lifetime, and I’m older than you. No, it’s going to be serious stuff,” he told Business Insider.

That is a great line. Except, in fairness, Rogers has used it before. Many times before. Here it is in 2016 and 2015. Reasonable facsimiles during 2014, 2013 and 2012 can be found here. This is the 2011 version.

I don’t mean to pick on Rogers. He is a rightly famous investor. He co-founded the Quantum Fund with George Soros. And I have no idea whether he has actually been short U.S. stocks. He may simply be avoiding exposure, or talking the game without playing it. He could be successfully invested elsewhere.

My point is, the best strategies provide immediate feedback.

As an investor, you need discernible data. Earlier is better than later. You want to know if your strategy is working. If so, you should be encouraged to add to it. You also want to know when you are wrong. If so, there is only one course of action. Stop being wrong.

The investment error committed by most bears is rationalization.

When they short a stock at $106 and it rallies to $127, they do not see a 20% loss. They do not see a failed strategy. They see an irrational market. The greater the advance, the greater their delusion. The damned market is crazy, they complain.

However, it is not the “market” that is crazy.

Livermore understood price was vital. There was never a good reason to ignore it. Price told him when he was right, and when he was wrong. Price kept him away from short positions for strong stocks. It also kept him long stocks behaving well when others took premature profits.

I started telling my members about Nvidia two years ago. Staying long a strong stock is harder to do than most people think. You need to constantly reassess your point of view. And you must ensure its price has not gotten too far ahead of the fundamentals. In other words, you need to be ready to sell … but not overreact to short-term concerns.

I still think Nvidia is reasonably priced despite its recent run. And it deserves a place in aggressive growth investors’ portfolios. That’s thanks to its unique place at the forefront of artificial intelligence, data-center servers, video gaming and autonomous cars. Yet holders must still keep a stop in mind in case bears get the upper hand.

Flexibility, foresight and patience do not normally go together in a single personality. But Livermore taught us that successful traders must learn to act firmly amid ambiguity.

Best wishes,

Jon Markman

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Comments 6

  1. H. Horace Newberry June 12, 2017

    What we’re seeing here is “reversion to mean” in action with this particular stock and the tech. sector in general.

    Reply

  2. David Bennett June 13, 2017

    Jon, with big respect,
    The next “clear” daily up target for XLF 29.34-30.38 and if XLK came down to say just below 52.00,,, would the average market cap to lower the XLK this much be enough cash rotation to push the XLF to its new up target?
    It would be interesting to know if these (2) market cap “ranges” match up closely…. There is no geometry on XLK (yet) to apply fractal math for down target, but a good Fibonacci line from past just above 52.25…….
    David

    Reply

  3. H. Craig Bradley June 13, 2017

    SECTOR HORSE RACE
    As of yesterday, the Financial or Banking Sector (ETF) has surpassed the Technology Sector by about 5%-6% year- to-date. Sure looks like a bit of sector rotation to me. The Financial Sector had their correction a month ago. Now, its Technology stocks turn to correct. Its a race between #1 and #2 top sectors thus far.

    Reply

  4. H. Craig Bradley June 13, 2017

    IF THE MARKET SAYS THE EMPEROR HAS CLOTHS, THEN ITS A FACT REGARDLESS OF APPEARANES

    JIM Rogers has been commenting about markets, bubbles, and another big crash ever since the last one in 2008-2009. He is one more voice in the chorus (crowd) predicting eventual financial mayhem. Jim Rogers says Treasuries are not “risk free” but the market regards them as low risk instruments, at least. So, Jim Rogers invests in Treasury Debt as if they really were low risk. He follows the markets not his opinion or beliefs of what it was or should be. Jim Rogers is thus a market realist. So, If we crash and burn, he surly will be saying ” I told you so ” in an interview during or after the next Great Crash. Personally, I can hardly wait.

    Reply

  5. spaulding June 13, 2017

    recently we having a cook out in Palm Beach drinking Budweiser with grandma Weiss thanks for your 100,000 nest egg Britney, brogan, brennan

    Reply

  6. Stewthedude June 16, 2017

    Panicking during a correction in the market is the worst thing you can due financially.Stock go up and they go down.Period.Look at a correction as a buying opportunity and you’ll be fine,remember what the oracle of Omaha says,buy low, sell high. And try some yoga,it relieves the stress.Be happy.

    Reply