The Blob

The Blob (picture source: Google Images) is a sci-fi classic from the late 1950s. The movie starred Steve McQueen and Aneta Corseaut as two teenagers who try to protect their town from an alien life form that absorbs everything it touches while growing bigger and redder and more aggressive.

Source: 22V Research

We thought about the movie and how The Blob could also very well apply to Tech’s position in the market. The Blob-like comparisons are many. For example:

1. 22V has the Market Cap Weight for Tech in the S&P at 45% vs. the S&Ps reported 30%.
2. S&Ps Total Market Cap = $44.5T; the Top 7 stocks Market Cap = $11.9T or 27%. Apple = 24% of the Top 7 and 6 ½% of the S&P.
3. NASDAQs Total Market Cap = $29.6T; the Top 7 stocks Market Cap = $11.9T or 40%. Apple = 24% of the Top 7 and 10% of NASDAQ.
4. S&P Information Technology Sector Total Market Cap = $12.2T. Apple = 24% and Apple + Microsoft = 45% of the S&P Technology Sector.
5. Over more than three decades Tech is one of only three Economic Sectors that are bigger today on a relative market cap basis within the S&P 500 than they were in December 1989: Financials from 8.3% to 10.9% (or 13.6% if we add back the REIT Sector), Health Care from 7.9% to 12.8%, and Tech from 5.7% to 29% (45% using our adjustments). Suffice it to say that we believe our 45% weighting for Tech is more accurate and representative of Tech’s actual size in the index if only for the fact that the combined market caps of the biggest six tech (we’re including AMZN) stocks – Apple, Microsoft, Alphabet, Amazon, Meta Platforms, and NVIDIA – are, by themselves, 25% of the weight in the S&P. Riddle us this, S&P, “If these six stocks are 25% of the S&P how can the entire Tech Sector be just 29% of the index?”
6. Tech’s Market Cap has grown in 13 of the last 15. Further, as illustrated by the table below, 22V’s Adjusted Market Cap figure for Tech is up 50% in the last four years alone.

Year	22V’s Tech Adjusted Market Cap %	Year / Year % Change
2017	30%	N/A
2018	32%	+6.7%
2019	35%	+9.4%
2020	42%	+20% (+40% in 3 years)
2021	45% (Dec 10, 2021)	+7% (+50% in 4 years)

With the above inputs it’s certainly understandable that Tech – top panel – and Tech Relative to the S&P – bottom panel – look unassailable.

In contrast, NASDAQ is different than Tech in that (a) Momentum, via the weekly MACD in the middle panel, is well under its early 2021 high while Tech’s momentum, in the middle panel above, looks like a new high is in the offing, and (c) NASDAQ Relative to the S&P appears to be topping.

Here’s how five Tech Indexes look on a year-to-date basis:
SOX+40%, AAPL +35%, XLK +34.5%, BIG 7 +32%, and IGV +14.7%. It’s obvious that the IGV is the weakest of the indexes in the chart while the SOX is in the lead. Incidentally, MSFT is 50% of the market cap of the entire IGV. Please see below for our Technical Scoring for the components of the IGV. With only 29% of the stocks showing Good / Strong Scores it’s safe to say Software is in a bear market.

We’ve been asked, “When will Tech correct?” We don’t think that’s the right way to think about it. Rather, we believe it’s more appropriate to say, “Tech better not correct sharply.” Remember what happened to the market after Tech peaked between 33% – 34% of the S&P in the year 2000? Today Tech is more than 30% bigger than it was at that time…yeah, “Tech better not correct sharply.”

At the end of The Blob, the townsfolk discover that the creature is vulnerable to cold temperatures. They arm themselves (remember it was the late 1950s) with CO₂ fire extinguishers and freeze the organism. The Air Force is called in and they transport The Blob to the Arctic where it will stay on ice and inert.

We continue to think it is unlikely Jay and the Federales use their own CO₂ fire extinguishers and raise rates aggressively to freeze stocks selling at high P/S multiples. But we did find it a bit curious yesterday to see Mohamed El-Erian pointedly criticize Jam Master Jay and the Fed on CBS’s “Face the Nation.” El-Erian said, “The characterization of inflation as transitory — it’s probably the worst inflation call in the history of the Federal Reserve.” He clearly couched his comment by not saying, “worst call in the history of the Federal Reserve.” He knew exactly what he was doing.

Autodesk (ADSK) – Technical Score = 0; Sell rallies

Snap (SNAP) – Technical Score = 0; Sell rallies

Zoom Video (ZM) – Technical Score = 0

Source: 22V Research

Source: 22V Research