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Big tech stocks like Amazon may be in a gigantic bubble

Brian Sozzi
Editor-at-Large

Big-cap tech stocks have charged hard of late, perhaps too hard.

Amid strong fourth quarter results and a general flight to high quality momentum tech names in February, the Nasdaq Composite hit its second straight all-time high of the week on Tuesday. The record-setting Nasdaq run has pushed it about 18% above its 200-day moving average, the most extreme reading of the current bull market, points out strategists at SunDial Capital Research.

In technical analysis parlance, the Nasdaq Composite is looking absurdly overbought.

Hence, it could be time for traders to take profits on those leading the rally such as Amazon and Microsoft. Those two big-cap tech names alone have tacked on an insane 7% in February alone. The momentum in tech has extended into the chip space, too —Advanced Micro Devices and Nvidia have surged 12% each this month.

(Photo by Bennett Raglin/WireImage)

At some point soon, valuations on tech stocks will likely matter again even that view is playing a backseat to momentum chasing at present. It’s unclear what would trigger the rotation out of these red-hot names, but perhaps interest just starts to die down shortly on valuation concerns.

SunDial Capital Research data shows that when the Nasdaq has reached such extreme levels, it has often experienced weakness over the next two weeks.

“The market is extremely stretched. And what investors have to ask themselves is am I comfortable owning stocks at 19 times and 20 times forward earnings, which incidentally are levels that have never been sustainable over the longer term,” cautioned Sevens Report Research founder Tom Essaye on Yahoo Finance’s The First Trade.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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