Mike Santoli's market notes: What to make of Thursday's tech stock rout

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 20, 2020.
Lucas Jackson | Reuters

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

  • It turns out stocks don't only go up. In fact when they go up a lot in a hurry, it becomes harder for them to keep going up.
  • No real news or data catalyst for today's little hiccup in the indexes – just as news and data were not really behind the ramp in the high-growth favorites on the way up. The Nasdaq-100 surged 14% in three weeks into yesterday, now shedding about 4%. At this point just a give-back of some outsized short-term gains, still within the uptrend. Could easily be a few more percent of downside before we call this more than a sharp but normal gut check.
  • The backdrop: An upside overshoot stoked by a buying frenzy from smaller investors and trend-following funds; rare overbought conditions; frothy sentiment seizing on stock splits and other flimsy premises; Tesla calls the market's bluff with a share sale and its biggest backer takes profits.
  • The tactical context: A mad rush of call-option buying created a self-reinforcing upward spiral in shares of the cult tech stocks, enough to force market makers to drive up both the stocks and volatility gauges. Erratic vibrations, now resulting in a quick unwind. Traders have pointed out Wednesday has been the strongest day of the week lately – the day weekly options expire. And Thursdays the weakest (including June 11, the last time we had a comparable one-day sell-off).
  • VIX at 30 and Nasdaq VIX (VXN) at 40 reflect a bit of equity stress and forced hedging. See if it burns itself out or if this is the start of some late-summer storminess, which we all noted is pretty common after a strong August.
  • Some sector/factor pinball going on, with value/financial sectors bouncing relative to the dominant growth areas. Still pure mean-reversion in this case, so far. Here's Nasdaq 100 relative to banks. Outperformance has been persistent but this week bumped against a multi-year extreme.
  • Typically the market likes to pull itself into a neutral positions of sorts ahead of a big data release such as Friday's employment report. Maybe we were overbought enough that the indexes needed to drop to get back in balance, though one could argue the fate of this market isn't too tightly caught up in one payrolls print at this point.
  • Treasuries rallying pretty hard on the equity dump, 10-year back down to 0.61%. Decent jobless claims had no legs in prompting bond weakness.
  • Market breadth is poor but less bad than one might expect, 1:3 up:down volume on NYSE, 1:5 down on Nasdaq.

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