Tesla stock went into reverse and took the Nasdaq with it, possibly signaling near-term top

• The Nasdaq may have hit a near-term top, after a sharp reversal from new highs Monday morning, strategists said.
• The big move was led by Tesla, which had surged more than 16% Monday to a new high, before a dramatic turn around.
• Some big tech names also hit new highs before selling off, including Amazon, NVIDIA and Facebook.

Tesla cars are seen at a shopping mall showroom in Los Angeles.

Mark Ralston | AFP | Getty Images

The Nasdaq's stunning reversal, led by Tesla, could signal that big tech has run out of steam and hit a near term top for now,  strategists said.

Some of the hottest Nasdaq names and both the Nasdaq Composite and the Nasdaq 100 hit new highs Monday, before a massive turnaround, which started just before midday as high-flying Tesla suddenly went into reverse.

Tesla was rallying hard early Monday, up 16.2% at a new high of $1,794.99, before sharply reversing to close down 3% to $1,497.06. The stock has been on a tear, crossing above $1,000 for the first time at the end of June.

"Tesla is the poster boy of a parabolic move here, and Tesla started to roll over at about 11:40 a.m.," said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. "That sell-off accelerated and at about 2 p.m., the California headlines exaggerated the move ... We know it's a one-way street. It got really just stretched and overbought and overcrazed in these tech stocks." 

Stocks like Amazon, Adobe, NVIDIA and Facebook all hit new highs before doing an about face, and ending sharply lower. They were among the biggest drags on the Nasdaq, which closed down 2.1% at 10,390.84, more than 430 below its intraday high. Apple also hit a new high, but it only closed down a half percent.

"There is a case to be made that this is what reversal days are made of," said Boockvar. He said Monday was considered an outside day reversal, a leading indicator for a potential trend change.

The stocks were already tumbling when California announced it would shut down some businesses, like indoor restaurants, movie theaters and bars because of the renewed spread of the coronavirus.

Rob Sluymer, technical analyst at Fundstrat, said Monday's Nasdaq trading may signal a short-term rotation from growth to cyclicals. Technically, the move was a negative reversal because the Nasdaq hit all-time highs before reversing hard, ending below Friday's close.

"We had a big move in growth. It's ripe for profit-taking. ... I think we're now going to see a tactical move in another direction," he said, adding the tech bull run is not over.

"At the very opposite end, you had banks and cyclicals trying to bottom here. I think you're setting up for at least a short-term reversal in the market from growth back to value," he said. "I think it's a short-term peak likely developing."

The Dow ended the day higher, up 10 points at 26,085, while the S&P 500 was down 0.9% at 3,155. The Financial Select Sector SPDR Fund ETF was up 0.4% Monday. The S&P industrial sector ended the day in the green, up 0.4%.

"I think there's a lot of support for the QQQs even if it pulls back to its 50-day moving average. That's a big hit but there's a lot of support there."  The QQQs  ETF represents the Nasdaq 100, and its 50-day moving average is 237.32, about 20 points from Monday's close of 258.54.

Sluymer said Tesla's volume of over 37 million was the largest since February.

"Tesla is a pretty good lightning rod for high momentum, high growth stocks," said Sluymer. He said index options expire Wednesday and equities options expire Friday, potentially driving some of the volatility.