Investors came in eager for technology this morning after the high profile bid for RHT by the antiquated IBM. Early gains were erased mid day by losses, hallmark bearish behavior and as markets start upon their highs and finish near their lows. Recognize this is a huge deal, and M&A activity has picked up as of late as we witnessed TWLO taking out SEND this month. Again depending on your bias bulls can state that this shows there is still value to be had, and bears can point out that this is occurring in a more upbeat fashion as cheap money is going to be a thing of past as interest rates climb. AMZN has is quickly into bear market territory now 25% off most recent 52 week highs and is now firmly under its 200 day SMA, a line it had been above for years. There should be a relief rally that would cause it to retest that line as it is very common to do so, after not breaking for a long time. This internet behemoth is more than 6% of the Nasdaq and the “higher they rise the harder they fall” quote comes in handy here. How long will it fall? Another quote reveals the answer, “those who have knowledge do not predict. Those that predict do not have knowledge.” React to PRICE action.
Lets keep in mind that market downtrends do not happen overnight. We have seen relative weakness for technology for sometime, most visibly in semiconductors and software. Even before this recent turmoil the major indexes were giving you fingerprints that this was potentially going to occur. One could have been alerted as the crucial round 1700 number on the Russell 2000 giving way about a month ago. Earnings have begun to disappoint, and some in alarming fashion. The most evident perhaps were GOOGL and AMZN, just last week disappointing. Recently we have witnessed ugly reactions to reports from TXN which wilted 8% on 10/24 in huge trade. The very next day AMD cratered more than 15%. A best of breed financial play that I really liked FDC slumped 17%. Laggard FLEX lost 35% on 10/26, and a former general software player ELLI lost more than 19% on the same session. There are certainly dislocations happening all around us in stock prices, but until the dust settles trade small, if at all and be plenty nimble. Below is ample evidence of market participants craving safety as real estate, utilities and staples led firmly Monday. Until the opposite develops be wary.
The semiconductor group has been lagging since the SMH put in a top the week ending 3/16 and some names have weathered the storm well. Others were even more adversely affected by the inclusion. Remember it is a good idea to keep long exposure small, especially in weak areas, and a watchlist for leaders in the arena, for even an investment in the generals will be weighed down somewhat. Below is an example of a laggard, whose chart earlier this year looked solid early in 2018 as it broke above a double bottom trigger of 58.83 on 3/6 up more than 4% in firm volume. It is a good illustration why technical analysis and keeping stops, could be a lot more helpful than fundamental analysis as the stock now has been chopped in half down 50% from its most recent 52 week highs. Here we see that its woes are continuing as it is now down 5% since undercutting a bear flag. Expect more weakness.