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Volatility in This Sector Just Hit a 15-Year High

By Brett Eversole
Tuesday, July 18, 2017

Volatility in the technology sector is hitting a rare high.
 
Compared with the overall market, the tech sector is as volatile as it has been since 2002.
 
Extreme volatility is scary...
 
High volatility means big price swings... And big price swings can make you feel like you're taking big risks.
 
But higher volatility alone does NOT mean higher risk in the markets. It simply tells you how much a market is moving up and down.
 
So while tech-sector volatility is soaring... that's not a reason to panic and sell. The tech sector actually soared the last couple of times volatility came close to these levels.
 
Let me explain...
 
Volatility in the technology sector is soaring.
 
The good news is that it has been upside volatility. Tech stocks are up 18% this year.
 
But even more important, history says today's level of volatility could actually be a good sign for further gains...
 
Volatility in the technology sector skyrocketed during the dot-com bubble in the late 1990s and early 2000s.
 
The sector reached a volatility ratio of 3 in February 2001 – meaning the volatility in tech stocks was three times higher than the volatility in the overall market.
 
You know what happened next... Tech stocks fell off a cliff for the next few years. This might seem like a terrible sign. But it's only part of the picture.
 
First, take a look at the chart below. It shows the volatility extreme happening right now...
 

Tech-stock volatility hasn't been this high relative to the overall market since 2002. It's more than twice that of the S&P 500 right now.
 
But the chart also shows that volatility has a long way to go before reaching its dot-com bubble peak. And more importantly, not every volatility peak led to a fall in stock prices.
 
Other than the recent breakout, this volatility ratio has risen above 2 only twice in the past 15 years... in 2004 and late 2016. Those both turned out to be good times to buy tech stocks...
 
The sector soared 53% from July 2004 to October 2007. And tech stocks are up 17% since the volatility spike in late 2016.
 
When investors think of high volatility, they tend to think about higher risk and falling prices. But high volatility just means stocks are moving around rapidly.
 
In the case of tech stocks, that means they can move dramatically lower... or dramatically higher.
 
Right now, we're in the middle of the "Melt Up" in U.S. stocks. And that will likely mean high volatility – and much higher prices.
 
Tech-sector volatility is soaring. And history says that means tech stocks should continue to be a big winner.
 
Good investing,
 
Brett Eversole




Further Reading:

"Melt Ups usually begin after a period of extreme fear," Steve writes. When volatility spikes, it might seem like a bad sign for investors – but the reality might surprise you. Learn more here.
 
Volatility in tech stocks has a long way to go before it reaches its dot-com bubble peak. And the same is true for the Nasdaq's valuation today... Learn why stocks can still soar dramatically higher right here.

Market Notes


FORGET YOUR WALLET – YOU WON'T BE NEEDING IT

Today's chart highlights a leader in mobile payments...
 
A huge trend is emerging... We're talking about the shift toward a "cashless" society. Regular readers know that Steve believes no one will carry a wallet in five years as more people use their smartphones for daily purchases. Today, we're seeing more proof that this trend is catching on...
 
PayPal (PYPL) is a global leader in online payments, serving more than 200 countries (in 25 different currencies). People love using PayPal because of its privacy features. On its platform, you can pay for goods and services without sharing any of your financial information... And you can do it all on your smartphone with the touch of a button.
 
PayPal's mobile business is increasing... The company reported that its first-quarter mobile payments increased 51% over the same period last year. And as you can see below, shares have soared in the past year, hitting new all-time highs. PayPal is well-positioned to benefit as consumers ditch their wallets...
 

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