Day Traders Diary

5/11/21

The major averages pulled back on one of the wildest days of the year for the U.S. stock market with technology shares stagging a rebound. Big Tech took a big hit to start the day on concerns about rising inflation and high valuations. The selling eventually spread to the rest of the market as the day went on.

The tech-heavy Nasdaq Composite closed down 12 points at 13,389 after shedding 2.2% at its session low. The Dow Jones Industrial Average dropped 473 points or 1.36% led by declines in Home Depot and Boeing. The S&P 500 slid 36 points or 0.9% as all 11 sectors traded in the negative territory.

Earlier in the volatile session, higher-priced technology shares led the market losses and the selling spilled over to everything from bank stocks to energy and industrials. Then many tech shares recouped most of the decline and closed in the green. Amazon and Netflix both rose more than 1%, while Facebook also reversed 0.2% higher. Apple and Alphabet also cut losses significantly. The growth-focused ARK Innovation ETF gained more than 2%, making back earlier steep losses.

The Cboe Volatility Index, a measure of fear in the markets derived by option prices on the S&P 500, jumped as high as 23.73, levels not seen in two months. The so-called VIX remained stubbornly above 20 for most of last year before dropping to a low below 16 last month. A rising VIX is often accompanied by falling markets.

Tesla shares, the poster boy for growth stocks with lofty valuations and expectations, fell 1.9%, but closed well off lows.

Investors bought the dip in tech shares amid the sharp sell-off this week. The group had briefly fallen out of favor earlier this year as fears of inflation and higher interest rates crept up. Growth-oriented companies, which were the biggest pandemic winners, tend to get hit hard by rising rates as they erode the value of their future earnings.

Some traders said so-called short covering contributed to the intraday comeback in tech. When shares sell off sharply, short-sellers betting against the names have to buy back borrowed securities in order to close out the short position and cash out.

Top investor Stanley Druckenmiller shared concerns on CNBC's "Squawk Box" Tuesday morning that unnerved investors to start the day.

While Druckenmiller said he was still long stocks somewhat, the hedge fund manager said assets were in a "raging mania" and that the Fed and U.S. government risked endangering the U.S. dollar's reserve status by injecting too much costly stimulus into an already hot economy.

The latest headlines, including a labor shortage as well as a jump in Consumer Price Index in March, helped fuel inflation worries.

Job openings soared to a record high in March as employers struggled to find workers to fill those positions, the Labor Department reported Tuesday.

Even as help wanted jumped from February by 597,000, or 8%, to 8.12 million, hires rose just 215,000, or 3.7%, to just over 6 million.

Big Tech got clobbered on Monday as investors exited stocks like Apple and Microsoft, dragging the Dow Jones Industrial Average and the S&P 500 off their record highs in the process. Both of those stocks lost at least 2% to start the week. The Nasdaq suffered the worse of the selling and fell 2.5%, finishing the day at its session low on Monday.

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