US markets have gotten hit hard today, just one day after a sharp jump that had bulls feeling like they had regained some control of this market. IBD put the market back into a confirmed uptrend this morning, and it appears they are going to be flip flopping a little bit after today’s washout. It appears yesterday’s aggressive late day buying was somehow the product of end-of-the-month portfolio adjustment.
It’s not constructive to see a potential distribution day like this, so we will watch to see how the market closes. Once again, though, we are seeing some leading stocks show relative strength, even though many are starting to go negative with this extreme weakness in the S&P.
This morning we saw Apple Inc. (AAPL) follow through to the upside after yesterday’s double dose of good news. Steve Jobs will be giving the keynote address at Monday’s event, where they will be unveiling iCloud, a long rumored but previously unconfirmed venture. We saw Amazon.com, Inc. (AMZN) pop after news of heavy investment in its cloud infrastructure, and this could the catalyst for a big move in AAPL.
The cloud computing sector itself had great moves this morning, highlighted by VMWare, Inc. (VMW) which was featured on my Morning Call show this morning. Another tech feature this morning, Rediff.com India Limited (REDF) had had another nice day after busting out of its lower range.
The Chinese Internets have become a case of the have’s and have not’s. Recent IPO’s Ecommerce China DangDang (DANG) and Youku.com Inc (YOKU) under heavy pressure as the IPO lockup period is set to end next week, which could trigger heavy selling. YOKU has been fighting hard to hold the $42 area, and could hold there before breaking down next week. SINA Corporation (SINA) looks like a great long here, which could be part of a long short hedged trade with YOKU potentially.
I was looking for a pause today, but this selloff is greater than expected. Perhaps people are now starting to pay attention to the many ills that still plague this country, especially now as QE2 winds down. There are so many questions still out there that makes investors jumpy whenever the market starts to sell-off. The panic of 2008 is still fresh in everyone’s mind, and it makes these pull-ins harsh. Among the questions I have:
- How long we can use the word transitory as an excuse for growing inflation?
- How many soft economic numbers can the equities market absorb, including a definitive housing double dip?
- How many “packages” can the IMF put together to keep kicking the can down the road for the weaker European nations?
- How many months can home owners under water live rent/mortgage free, before they get the padlock?
- How many weeks can we extend unemployment insurance for those out of work for two years plus?
- What will happen when QE2 ends and plunge protection team leaves for vacation in the end of June?
- How many mistakes can societies make throughout history without learning from them?
These are a lot of unanswered questions that I try not to think about when I trade stocks on a 1-3 day time frame. But you can bet they are every investor’s mind.
Disclosure Scott Redler is long VMW.
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