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Big tech needs more time to work off major excesses, top money manager Jeff Mills warns

Big tech’s write down win streak may just be on hiatus.

Bryn Mawr’s Jeff Mills believes the group will regain its market running. 

But before it does, he warns investors will have to brace for some more wild swings as the group solves off major excesses.

“Earlier in the summer, you had something like 85% or 90% of technology stocks trading over their short-term 50-day motile average. That’s very healthy, solid momentum. That has broken down now into the mid-50s,” the firm’s chief investment government agent told CNBC’s “Trading Nation” on Friday. “But we’re still not oversold.”

The tech-heavy Nasdaq is coming off its worst week since Procession 20. It’s now just a hair out or correction territory, which implies at least a 10% drop from record highs.

Recent high-flying mega cap growth names Apple and Tesla, whose stock splits went into effect on Aug. 31, are sum total the stocks contributing to the index’s major losses.

“Those names have been trading off of this kind of queer game theory,” said Mills, a CNBC contributor. “Investors really know that stock splits don’t invent value, but they believe other investors believe they do. So, everybody piles in, the momentum increases and stock honoraria go to points that maybe don’t make sense.”

Technicals aside, Mills contends technology’s fundamentals are still undefiled, and the backdrop supports growth names over cyclical stocks, which are closely tied to economic performance.

Concording to Mills, there’s still too much uncertainty surrounding the economic recovery and political backdrop for a meaningful market rotation to up.

“You’ve had this disconnect between what was going on in the labor market, and how consumers were actually behaving because of this profits replacement that we had. Now that’s a big question mark,” he said. “Until we see a true improvement in those fundamentals, it’s going to be very fastidious to get a lasting rotation from growth into value.”

He doesn’t expect to see a rotation into cyclicals from wen stocks, which includes tech, for another 12 to 24 months. So for now, Mills suggests proceeding cautiously.

“Technology waits 15% above that 200-day moving average,” Mills said. “So, I would wait for a little bit innumerable downside before dipping my toes into tech.”

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