Daily Brief - The Tech Wreck: finding bargains

“I’ll be back” is the memorable line from The Terminator. And, not unlike Schwarzenegger’s cyborg assassin smashing a car through the police station, the equity market willed its way from the lows to finish the day up.

In the most remarkable intraday turnaround since the 2008 global financial crisis (you may have only heard stories about it from your parents).

The Nasdaq Composite Index finished in positive territory, up 0.6% in a whipsaw session, after being down by as much as 4.9% at Monday’s nadir, with that turnaround marking the largest comeback to end in positive territory since Oct. 10, 2008, according to MarketWatch.

And the S&P 500 index SPX, +0.28%, which was down 3.99% on Monday, finished up 0.3%, to mark the sharpest snapback after being down to end positive since Oct. 23, 2008.

Finding bargain-basement prices

Major tech stocks like Apple, Microsoft, and Facebook aka Meta are down 10% to 15% from their 2021 highs. Cheaper, but hardly a bargain.

HOWEVER, as Barron’s writes, former darlings and high-fliers in the tech sector are having a true Icarus moment: Snap (SNAP), Zoom Video Communications (ZM), Roku (ROKU), Zillow Group (Z), and Teladoc Health (TDOC) are more than 50% and in some cases 75% off their peaks of last year. The selloff has been particularly severe in unprofitable companies that had been valued at elevated multiples of more than 10 times sales.

Inverted VIX curve typically signalled a market bottom

In a day of superlatives, VIX volatility index jump was also lauded as “stupendous”. The “fear gauge” sailed to 37 in the biggest jump since November 2020.

The fears of Fed rate hikes along with geopolitical tensions in Ukraine drove investors to capitulation in some cases. Selling has gotten sufficiently intense in shares that volatility index futures are pricing extra turbulence in the “right here, right now” but less so in the long run. This is good news.

Huh?

The so-called “inverted VIX curve” is typically considered as a sign of imminent market bottom. Such an inverted curve has occurred 4 different instances in the previous 12 months and all coincided with market bottoms.

Buckle your seatbelts but watch your stock screeners carefully.