One of the sectors in the equity markets that can put small and medium-sized investors in the greatest difficulty is technology. This performance is due to the fact that it has been one of the segments that has appreciated the most in the months that we have been in 2018. With a appreciation close to 25% and that encourages us to be much more cautious with these stock market proposals from now on. Among other reasons because it will be much more complicated for them to maintain these exceptional ratios in their profitability.
On the other hand, it should be remembered that in the event of a change in trend in the international equity markets, it will be precisely the technological securities that have the worst time in the formation of their prices. A stage, uptrend to downtrend, which many financial analysts predict. Especially in a conjunctural environment such as the one that may occur from next year. Because these special values are characterized because they go up a lot, but also because they are what more euros are left on the way. Something that undoubtedly can happen, although it is not known from what date.
Another aspect that makes investors prudent at this time is the fact that for a large part of financial analysts technological values they are overrated. That is, they are very expensive and before taking positions you will have to wait for them to show more competitive prices than they have now. To the point that there will already be better times to buy your shares at better prices, even after many months or even years. The current environment is not very enthusiastic for making purchases in the equity markets. At least for a few months.
Technological: pay attention to your indexes
A very effective strategy to gauge how the technological stocks will behave in order to analyze the evolution of the indices of this business segment. In this sense, a very relevant point of reference will be constituted by the behavior of the technological market par excellence, the Nasdaq xnumx. Above all, it will be necessary that you do not abandon the level of 2.400 points at any time. It will be one of the keys to enter or exit the technological values with certain guarantees of success. Despite the fact that the buying positions can still be imposed on the sellers. This can be checked after the holidays.
While on the other hand, there is also the factor of withdrawal of financial stimuli in the markets and that has already been announced by the European Central Bank (ECB). To the point that it may originate from next year and can have very negative effects on this class of securities as a whole. Not surprisingly, they would be one of the most affected in this scenario that arises for the coming months or years. Where small and medium investors of course have more to lose than gain. This is that simple.
Scares for the next few months
There is no doubt that technological values will be able to give more than one negative surprise after the holidays and despite recent rises in equity markets. Because in effect, securities with these characteristics are quoted, more than by the business results presented every quarter, by the growth expectations offered by these companies. Being in any of the cases, one of the most affected in the bearish processes developed in the equity markets.
It cannot be forgotten in any respect that it is precisely the technological stocks that are most likely to drive large revaluations in the bullish phases of the stock market. Above other sectors that are more or less cyclical and that also perform well in this kind of scenario. While on the contrary, in bearish periods they tend to trigger major falls in the price of their shares. With a verticality that draws a lot of attention to all small and medium investors. With cuts that can even exceed 5% levels in each trading session.
Under extreme volatility
Another of the great common denominators in this class of stocks is their enormous volatility. That is, they present very marked differences between their maximum and minimum prices within the same trading session. With very dangerous divergences that can exceed 10% levels or even more at times. With a more than notable risk on the investment portfolios of investors with less experience in financial markets. Not surprisingly, it becomes very difficult to operate with these values if you do not have a certain degree of learning. Because it cannot be forgotten that the risks are enormous.
On the other hand, this volatility that we are talking about makes the way of operating in securities from new technologies so special. This is because they must be performed very fast movements in the financial markets. Beyond its technical considerations and maybe also from the fundamental point of view. That is, they should be aimed at the shortest term and almost never at medium or long-term periods of permanence. This is something that investors with long years of experience in equity markets do very well.
More sensitive to recessions
No less important is the fact that technological values will be the most affected in case of landing a new economic recession. A fact that the most important financial analysts do not rule out. If not, on the contrary, they have been warning it for only a few months. This is a more than overwhelming reason not to be positioned in these values if in the end this economic scenario so worrisome for everyone crystallizes. Because on the other hand, they are companies, generally, that do not distribute any dividend to shareholders, as occurs for example with electricity companies, banks or highway concessionaires.
In this sense, stock market experts advise taking very prudent positions with this class of very special securities. To the point that they come to think that they have been late to enter their positions. He should have taken advantage of the best years of the stock market in terms of its profitability. That is, between the periods included between 2012 and 2015. Where some of these stock market proposals rose above 60%. A real business for users who have taken positions in the early years of this decade. If so, congratulations, because you will have made a lot of money in these operations.
Why are they overbought?
Another aspect that should be analyzed is because their shares are so expensive at the moment, in the opinion of a large part of financial analysts. Well, because these kinds of companies have been going up for many years, perhaps excessive and this sooner or later ends up paying it in one way or another. They may also have developed a relevant ceiling in their quotes, as can be expected during these weeks. Because in effect, they will not be able to climb permanently as they have been doing until now. At some point there will have to be a major change in trend.
In this sense, technology stocks are the closest thing you can talk to cyclical companies. That is, they are in favor of the trend, as happens with stock market proposals such as Arcelor Mittal or Acerinox, to give just a few examples. Even with a very pronounced trend that can exacerbate these movements in the price quotation. From this perspective, they are securities that are much easier to follow and above all to invest. Because there are few reasons for surprises, both one way or the other.
A recurring type of business
If Iberdrola stands out for something, it is because it represents a line of business that is always demanded by citizens. They need energy for their homes or work and this company provides it to them every month under an increasing rate year after year. This is one of the reasons why it distributes profits to all its shareholders. Unlike other lines of business, they depend on other factors to sell their products or services. This offers great peace of mind to investors who have taken positions in this stock.
On the other hand, electricity is one of the most stable businesses within the national business community. With very little competition due to the special circumstances in which this relevant sector lives. Finally, it should also be noted that it is very difficult for this class of companies to go bankrupt at some point in their business life. Something that does not happen in other sectors more vulnerable to this remarkable fact than if it can happen in other listed companies. Much liked by life savers. Nothing strange in a value like this.