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3 Reasons Why the Nasdaq Has Plummeted Since March:

NEW YORK (TheStreet) -- The Nasdaq 100 (QQQ) has been under pressure since early March. In-fact, it's down 5% since then. On StockTwits, we continue to see interesting explanations for the sell-off. But we're also seeing signs that the market may be ready to bounce and go higher right now.

Several investors have attributed the recent sell-off to the overvaluation of momentum tech stocks. Mainly companies like FireEye (FEYE - Get Report), Yelp (YELP - Get Report), Netflix (NFLX - Get Report) and Pandora (P - Get Report). These stocks are all down more than 20% since last month. Other investors have cited an exhausted uptrend, which has manifested in technical breakdowns across the board. In this post, we are sharing 3 possible explanations for the sell-off. But we also want to hear from you -- so please share your thoughts below:

1) Doug Short, who writes daily and weekly columns about the valuation of the stock market, believes that the market could be anywhere from 51% to 84% overvalued. Short likes to compare several ratios like the Crestmont P/E Ratio, Cyclical P/E 10 Ratio, and Q Ratio to their arithmetic means. He uses these valuation ratios to roughly gauge the value of the market compared to its historical levels. Here's the original post that caught our eye -- it was shared on StockTwits:

Here's Doug Short's latest market valuation analysis - overvalued between 49% and 82%! $SPY $DIA $QQQ

- Elliott Wave Analytics (@elliottwave) Apr. 7 at 04:22 AM

2) Another theory proposed for the recent sell-off is the formation of a new equity rotation. This time, both defensive and value oriented stocks are at the forefront. Momentum stocks were clear leaders in 2013, but so far that is not the case in 2014. This simple and succinct comment caught our eye earlier this morning:

Significant rotation continues from Growth to Value Stocks and from Cyclicals to Defensive Sectors. $SPX $DIA $QQQ $IWM

- Ben Silverberg (@silverjet2) Apr. 8 at 07:51 AM

3) The third and final explanation for the Nasdaq's recent sell-off is an interesting one. It has to do with taxes. If you remember the 2000 tech bubble, a similar yet more extreme sell-off also happened in April of that year:

In 2000 the Nasdaq fell 25% in 2nd week of April so ppl could pay taxes following big gains in 1999. Rebounded 19% last 2 weeks April $QQQ

- 1971 Capital (@1971capital) Apr. 8 at 08:30 AM

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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FEYE $16.68 0.00%
NFLX $91.54 0.00%
P $8.68 0.00%
QQQ $105.12 -0.58%
YELP $22.15 0.00%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

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