Santoli: The tech sell-off has accelerated from broken momentum to a big purge

Published Mon, Jan 10 20221:37 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. More liquidation with most punishment delivered to the familiar growth sectors to start the week, with perhaps faint signs that the sellers are starting to punch themselves out and require a rest. The Nasdaq 100 and speculative-growth sell-off has proceeded from broken momentum to deferred profit-taking to relentless valuation compression to more indiscriminate purging of positions. Hard to handicap how far is too far down, but the mega-caps have been reached ( MSFT -12% off its high) the Nasdaq Composite has fallen to its 200-day moving average for the first time since April 2020 (a time to get less bearish if it's still a bull market), small-cap growth is at an historic discount to S & P 500 (based in price/sales ratio) and the vaunted rotation from growth into cyclicals/value is now a crowded thesis (even if exposures to value aren't yet extreme). This isn't to say the damage is illusory or that the broader market picture isn't a bit precarious. The S & P 500 did buckle below the breakout level which sinks it back into the "old range" that prevailed from October into December. The index did bounce this morning off a widely watched area of potential support surrounding its 100-day average. A higher-stakes level is around 4,500, roughly the early-December low. An old Wall Street rule of thumb is that if the December low is broken early in the new year, the odds of a more bearish tape rise. Some also saying 4,600 today has significance in the shorter term. Whole sections of the speculative "story stock" universe are being abandoned: too many IPOs of unripe companies, too much portfolio pain, too much belief that these stocks can't work as the Fed tightens. Is it too early to look for appetizing food in the dumpster here? As noted, small-cap growth has had all its premium bled away and more. Of course, things got so overdone on the upside they might have more payback coming, whether in time or in price. Either way, it's been a stunningly swift adjustment. Question now is to what degree the market is so keenly anticipating a tighter Fed that the central bank itself might have less to do to cool things off and ride the hoped-for normalization of supply chains, inflation, and financial conditions. Credit markets have stayed steady, all things considered. Professional risk positioning seems cautious, even as retail traders came into the year with historically high equity exposures and flows into tech-centric ETFs were running hot. Goldman's sentiment gauge based on institutions' stance: Market breadth is ugly but somewhat short of climactic capitulation-type readings and is actually a bit better on Nasdaq than NYSE for a change. Getting sold out? VIX arguably is under-reacting to the pullback, merely in the 22s. perhaps because a lot of this is rotational and because the S & P was at these levels a mere three weeks ago. A sign there's no real stress or that we need more fear to surface before a decent trading low develops?

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 10, 2022.

Brendan McDermid | Reuters

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

More liquidation with most punishment delivered to the familiar growth sectors to start the week, with perhaps faint signs that the sellers are starting to punch themselves out and require a rest.