The dominant force behind the recent Nasdaq slip wasn't a tech tumble so much as it was a momentum moratorium. At least, that's what Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, said Tuesday on CNBC's "Trading Nation."
Big tech stocks like Apple and Netflix certainly took it on the chin on Friday and Monday. And the Nasdaq 100 index, which is largely composed of a few large and strongly performing stocks, fell by 3 percent over the two sessions. But Chintawongvanich observed that the best-performing stocks have tumbled in a variety of sectors.
"This sell-off wasn't really about momentum. We did see these high-flying tech names this year take a hit, but really it wasn't just the big tech stocks. What we saw was that the best-performing stocks were actually the worst performers on Friday and Monday, and vice versa," Chintawongvanich said. "This was quite a smooth relationship."
On Friday, a Goldman Sachs report that may have contributed to the tech selling made the point that big tech stocks, growth stocks and momentum stocks have begun to enjoy a very tight relationship.
"While not exactly a Fields Medal worthy observation, we note that FAAMG [the group composed of Facebook, Apple, Amazon, Microsoft and Google parent Alphabet] is positively correlated with Growth and Momentum and this relationship has strengthened in recent months," the Goldman team led by Robert Boroujerdi wrote.
But just because the best-performing stocks are tumbling, it doesn't mean that "doom is coming," Chintawongvanich said.
"I think you may see a little more giveback in high-momentum names. That may take a little more time to take out. But generally, we've seen historically that when you've had these momentum unwinds, they don't necessarily mean bad things for the broader market."
In fact, to the extent that money is going into other stocks and sectors "it is healthy that you are seeing this rebalancing," Chintawongvanich said.
As the information technology sector dropped over the past week, financials and energy have gained ground. This "rebalancing" explains why the S&P 500 has remained relatively stable despite the significant drops in a few widely watched stocks.
So far this year, the iShares Momentum Factor ETF has nearly doubled the performance of the S&P 500.