It's a program! It's a computer program! I'm talking about the group move in the software-as-a-service and Internet plays that all ignited at once after Yelp (YELP), which reported last night, didn't get crushed at the opening.
That's right, last night, Yelp announced its quarter, and within seconds the stock traded down, not up, breaking the pattern we've seen ever since the big reversal of Salesforce.com's (CRM) stock at the end of February.
Remember the pattern we have seen ever since the king of the cloud did the ill-fated pirouette on its earnings report at the end of February. That's when the beast of the software-as-a-service cohort announced sales and earnings that were as close to a picture-perfect quarter for these high-multiple companies that I can recall.
Salesforce.com immediately traded up in after-hours, only to then reverse and reverse hard the next day. Ever since then, it's been a long, sickening decline from an all-time high at $67 to $49 the other day. And given that Salesforce.com is the umbrella for all of these companies, meaning that it is the leader in the space, the pin action has been nightmarish.
However, you have to recall that the run-up into that earnings report for Salesforce.com and for the entire cohort was unbelievable, hence why the bellwether stock is only down 5% for the year, even as it feels like it is much more than that because of the relentless selling.
Ever since then, we've seen the jump up on what looks to be what the growth momentum lovers want on these quarters, and then the crash down soon after, usually the next day.
The pirouette was most visible on Amazon.com (AMZN), which rallied hard right during and after the release of the last quarter, as again the bulls seemed to get everything they wanted. But then it plunged from $337 to $303 the next day. That was the move that shook the world. However, it shouldn't have, as all of these Internet-related stocks had been doing the same thing on earnings ever since Salesforce's sustained plunge after the jump up.
If you take a look at the time and sales of the after-hours trades and the opening of these kinds of stocks ever since, you will see exactly what I am talking about: initial love for the quarter because every metric was bested, and then a reviled reversal as traders took profits or used the pop to liquidate.
The last 24 hours of Yelp, however, broke the now-well-established pattern. As soon as the quarter was reported, within seconds, the stock plummeted -- not rallied -- but plummeted and then reversed upward.
Now the machines, also known as the algorithms, are all programmed to react to this pattern. So when the pattern got broken, they switched directions, and everything that would have gone down suddenly flew up. Again they all trade together.
There was a time when we used to be able to think about this and take the stocks. People would have their list and put it into action.
Now, though, the machines are programmed. So we are getting these moves instantly.
Hence the action you see.
It is ridiculous. Concur Technologies (CNQR) and Facebook (FB) and Workday (WDAY) and ServiceNow (NOW) are not like Yelp. But they trade together in a basket. And the basket has gone from sell to buy on the basis of this move.