Somebody panicked today. That someone decided he or she couldn't take it. There's just too much risk there's just too much uncertainty.
So, they blew out their tech and they created a lot of collateral damage with their exit. That's how the market, especially, the NASDAQ, could tumble so viciously and so indiscriminately.
As you know if you have watched the show much, I believe that no ever made a dime panicking. There is typically a better time than to sell into the maelstrom, the maw of fright.
But many people don't have the temperament for it. They see a big seller dumping, they figure the seller knows more than they do, and they join in. Of course, historically and psychologically, we know that buying interest percolates over time. But panics, like life, are swift nasty and brutish. In the old days you could see a couple of stocks bring out selling which then could spill over to a sector or two. Now we have a different phenomenon. So many stocks are connected via ETFs that you've got wild fire sell-offs that can't be put out, they have to burn out.
With that background, let's identify the culprits and how you can spot them and even profit from the grim reaper action they trigger.
Let's start with the atomic bomb of culprits, Facebook (FB) . You know we went to the Tarpon Rodeo at the end of last week, the oldest fishing derby in the U.S. where we caught hundreds of fish next to 99 Baker, a gigantic hulking mass of a decommissioned rig, including the prize winner for the key white trout category.
There was no cell service on board but I swear you could have felt a tremor, an equivalent of another Deep Water Horizon when Facebook reported.
I am not going to mince words. Facebook threw one of the worst quarters I have ever heard and complicated it all with a nonchalant conference call that, in a vacuum, you would think they were actually proud of how they had done. The truth is that the company is having a dramatic decline in the rate of growth coupled with a dramatic increase in the rate of spending, much of it dead weight to comply with rules we either thought they were complying with or didn't need to.
I felt like the company had gone from a social Maserati to a Greyhound bus regulated by dozens of governments all over the world. While they insanely prattled on I tried to find one good thing to talk about in the future. I felt like saying, "when you are winning, you can be arrogant. But when you are losing, humility at least can partially the ameliorate the pain. Nah. Same old Facebook.
It was ghastly. I actually questioned, at one point, where the whole thing wasn't a house of cards. In truth, it's now. I think they were being overly negative, underpromising in order to underdeliver. But the narrative was so negative that instead of their conceited self-congratulatory riff, I believe they should have come out midway through the quarter -- right when Zuckerberg was selling billions of dollars of stock, with the company buying back billions in exchange, some at much higher prices and preannounced that things had slowed.
I think the thermo-nuclear explosion was so potent, so shocking that initially the blast obliterated the stock of Facebook itself, sheering off 20% of its value. Friday saw a wave of radiation emanating from the blast zone. Today looked like we might get some stabilization but that as a purely hopeful diagnosis.
It was almost as if some very key, large cap tech names ventured outside their bunkers and were hit with an radioactive wave that triggered the awful panic that tool down nearly everything.
The dust covered the cloud kings, like Service Now (NOW) , which just reported a fine quarter, to Alphabet (GOOGL) and Amazon (AMZN) , two of the best in the show, to Adobe (ADBE) , a big rollback of some recent hard fought gains, and even Microsoft (MSFT) which, arguable has had the best results in all of tech.
The linked ETFs then sent these and all of their fellow travelers, cascading into the red. You can always tell a panic when the sellers are incredibly undisciplined and do not take heed for a moment that buyers are actually will to step in to the miasma. It just doesn't matter.
Now guilt by association has some pertinence and validity. If fewer people are going to the web to check their Facebook pages, you could conclude that all of the companies on the social media periphery, should get taken down. Social media is a huge driver of the cloud.I am not buying it. Amazon and Microsoft and Alphabet's Google Web Services had extraordinarily strong businesses. However, Twitter (TWTR) , much smaller than Facebook, also had much slower growth, so a rational person could irrationally panic when he saw the cloud names roll over again with the simple logic of who wants to be in expensive tech levered to social, when you could be in down and out tech, like Broadcom (AVGO) or Intel (INTC) or IBM (IBM) . Value tech lives again.
Now one thing we know about money that comes out of stocks: it goes back into stocks. But often stocks in a whole other sector, or sectors. We saw scattered buying, for example, in the drug and biotechs, the banks, some industrials and and retailers.
That kind of theme-less buying is also indicative of a pure panic. It's kind of like every-man-for-himself buying. The banks go up because the ten-year treasury has gone up interest rates. So they are kneejerk buys. The drug stocks? They have come down to levels that people are tantalized as an alternative to tech. The industrials? That's all about a cooling in tensions with Europe as well as the 4% GDP growth we got Friday. The retailers? Oh I could foment something but there's really nothing to say for the stocks except that if you believe the trade war with China is staying heated, especially in light of the collapse of the NXP Semi (NXPI) -Qualcomm (QCOM) last week, then you want to stay domestic.
So what happens next?
Let me give you an outlier forecast. I often believe than when you get the kind of panic we got today it's a cleansing action, like a big raid that washes away the detritus of the weak hands who mistakenly thought the panic will be a good way and a perfectly self-fulling reason to dump whatever it takes. If you wait until tomorrow and pick among the rubble of stocks that were only collateral damage via etfs that really aren't levered to social media and you will snare some bargains.
Why?
Because the same trends that were so important before Facebook-cybersecurity, video games, internet of things, and cloud onboarding-are still important, but their stocks have been reset in price. That's what many people have been waiting for.
Now that they have it, you can't say, "I will wait for it to go even lower because there's more panic ahead." Instead you have to say "I always said that if we get a big break in prices like we just had, I am going to put money right to work starting to scoop up stocks that I didn't think we would see again. I know, sounds simple, but remember, after the panic, it doesn't storm, it gets calm and you have to take advantage of it when it does.
