VIEW ONLINE What record high? Signs of an imminent meltdown in tech stocks keep piling up.
- The market has been celebrating the climb toward record highs in tech stocks over the past few weeks, but a troubling situation has developed behind the scenes.
- It recently caused a proprietary indicator developed by The Leuthold Group to reach a sell signal for the tech-heavy Nasdaq Composite index.
- The signal is just the latest in a long line of evidence suggesting that the tech rally is getting exhausted.
Everyone knows major tech indexes are sitting at record-high levels. But under the surface, a dirty little secret lurks.
Last week, the number of stocks in the tech-heavy Nasdaq Composite index trading at one-year lows outnumbered those at one-year highs, according to data compiled by The Leuthold Group.
This is cause for concern.
The bottom line in this chart shows a proprietary indicator maintained by Leuthold that is designed to identify times when the numbers of new highs and new lows have been simultaneously large. The firm has found over time that when it climbs above a certain level, it signals selling in the Nasdaq.
As you can see, this "sell" threshold was breached during the fervor last week, which could mean a tough patch ahead for tech stocks. In fact, the indicator signaled a sell in the periods around both the dot-com bubble and financial crisis — though it hasn't always indicated a bear market.
The Nasdaq signal is "unequivocally bearish for stocks in the short-term, and probably even the intermediate term," Doug Ramsey, Leuthold's chief investment officer, wrote in a client note.
Other signs of tech-stock exhaustion have been popping up with increased regularity. A recent analysis from Goldman Sachs showed that hedge funds had rotated out of tech and had begun favoring the healthcare sector over all else.
This trend has also been seen on a fund-flow basis. Since the beginning of July, the SPDR Technology Select Sector ETF has seen $63 million of outflows. That contrasts sharply with the whopping $1.4 billion of new capital that has poured into the fund's healthcare counterpart.
Further, short sellers — or investors betting on an asset to decline — have tech shares firmly in their sights.
They are shorted roughly $37 billion worth of stocks in the so-called FAANG group (Facebook, Apple, Amazon, Netflix, and Google) over the past year, according data from the financial-analytics firm S3 Partners. That's a 42% increase from a year ago, Bloomberg finds.
In the end, Leuthold isn't necessarily calling for a bear market in the tech stocks that have so thoroughly dominated the past few years. He just sees a short- to medium-term reckoning in the cards.
But once the stocks hitting lows begin outpacing those hitting highs, that's when it'll be time to truly worry. Stay tuned. Read » | | | | | Advertisement | |  | |  | | | | | We have updated our Privacy Policy to reflect global privacy standards. We encourage you to read the updated policy in full. By continuing to use our sites, services and apps, you agree to these updated terms. If you would like to opt-out from receiving emails, please click Unsubscribe here . 
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