Capitulation in Tech Stocks Signals Massive Upside Ahead – June 6, 2024
Did you get the memo that it’s time to buy Technology stocks?
Of course you didn’t. The media has been focused on job growth and rate cuts.
But the reality is tons of growth stocks were dumped last week.
That’s good news because capitulation in Tech stocks signals massive upside ahead.
Lots of folks discuss the word capitulation, but few can help you visualize it. That’s where MAPsignals comes into play.
As we show time and time again, when the crowd rushes for the exits at the same time – prepare for a beautiful buy the dip setup.
Last week our data noted the most risk-off action in Tech shares since the October lows. These rare moments offer investors a small window to buy beaten down names…poised to pop.
As always, don’t just take my word for it. We’ll study the historical proof pointing to greener pastures for Tech shares.
Believe it or not, this signal has been undefeated over the past 10+ years.
Go ahead and hug a bear. They’ll need it!
Capitulation in Tech Stocks Signals Massive Upside Ahead
The positive equity narrative from last week is getting an upgrade. If you recall, our data signaled the most equity selling since the October lows…pointing to big gains ahead for the NASDAQ.
Not only that, we’ve actually been in the midst of a huge Technology risk-on wave since November.
The recent lift we’ve witnessed the last couple of days has vaulted the growth-heavy group to 2nd place in our MAP Score rankings.
As a reminder, these rankings are looking at the entire equity landscape and tallies an equal weighted score for stocks in each sector:
Sector leadership is step one in identifying a worthwhile trend. What’s even more encouraging is when a massive sell wave hits a high-quality group.
In this case, Technology (primarily software stocks) names saw outright panic liquidations on May 30th.
After a lackluster quarterly report out of Salesforce (CRM) hit the tape late last Wednesday, weak hands decided to hit the sell button and ask questions later. (disclosure I’m a long-term CRM shareholder)
Anything appearing software related was dumped in unison. In fact, 44 discrete Technology stocks were sold on May 30th, the highest number since October 26th’s rout of 45 equities.
This amounts to roughly 20% of our Technology sector universe. That’s a high number. Below showcases last Thursday’s capitulation and I’ve also circled prior similar instances the last 2 years:
One thing you should notice is this level of carnage is rare. More importantly, these panic selloffs tend to occur at the local trough of the sector.
In this chart above we are using the Technology Select Sector SPDR Fund (XLK) as our Tech barometer. It’s an ETF jampacked with high-quality growth stocks.
But the million-dollar question is what can we expect after the crowd dumps a basket of Technology shares?
Thankfully using evidence-rich analysis, we have clues. If you’re allergic to juicy gains, please divert your eyes now.
Going back to 2013, there’ve been 78 days when our data logged 44 or more Technology stocks sold. Here’s the forward returns for XLK post this rare signal:
- 3-months later, XLK ramps 7.8% on average
- 6-months later, the group surges 12.7%
- 12-months after, technology shares power 23% higher
- 24-months post this signal, XLK rips 57.2% with a 100% positive hit ratio
Our Top 20 report includes 2 showcased stocks that we’ve done extra work on in an effort to isolate our highest conviction opportunities.
Since August 2022 through February 2024, those names have gained an average of 46.77%, hypothetically held as of yesterday’s close.
This rare list of stocks includes Super Micro Computer (SMCI) from August 2022, Broadcom (AVGO) from March of 2023, META Platforms (META) from March of 2023, Celestica (CLS) from July 2023…and many more.
Tracking institutional money flows reveals tomorrow’s winners.
Use a map to spot them.
Here’s the bottom line: Capitulation in technology stocks signals massive upside ahead. Last week saw the most Tech selling since last October.
Since 2013, when we’ve seen similar capitulatory events, a share price revival ensued. Now is the time to start grabbing oversold software names.
Rarely do liquidations come along…and when they do, jump in with both hands.
Author: Lucas Downey