Should we give up hope? I say what's this we stuff kimosabe. Today's just another day of total mayhem when it comes to tech. We are in the city of Philadelphia tonight to celebrate the opening of the NFL season and all I can think when I look at my screen is "wow FANG's got no defense. The darned Nasdaq's getting toasted by the old guard.
What's the real reason why an NFL team has no defense? It's typically because they can't cover the wideouts and they can't get to the quarterback.
Tonight every tech company is covered and the quarterback, Facebook (FB) , keeps getting sacked, the semiconductor company Micron (MU) is getting caught four yards behind the line of scrimmage, and there are shutdown corners, galore.
To belabor the analogy given that we are indeed at the Comcast Center where we will be talking to an Eagle alumnus as well as Comcast (CMCSA) CEO Brian Roberts, head of the tech company that is Center City, today is the third trap game in a row and tech needs both a bye and some buys.
I don't expect them yet. Maybe another day or two and they could get there.
There's always a tendency when we see these tech sell-offs to play pin the tail on the reason. Is it a slowing of the need to digitize. Is it regulation cutting growth? Is it a change in user patterns? Is it some sort of shift to the way things used to be done. Wouldn't that be rationale? Wouldn't it be so easy to say, ah hah, this is the big sea change and we better get used to it.
The problem with that donkey's tail is that while it sounds rigorous and even empowers people to make decisions, it's not rigorous and you will be making faulty decisions.
That's because there is no sea change. There's just the mechanics of money management and the need to take profits before someone else takes them for you.
Let me put my old money management hat on so I can explain.
At any given time you will see three kinds of stock holders own a stock. There's the S&P index and these days they own a plurality of stocks. They don't really count for this discussion, yet.
Then there's the mutual funds that are overweighted in tech, meaning they have more tech than is represented in their benchmark, the S&P 500. And then there's the hedge funds that have algorithms and ETFs that tell them what to do.
Right now the second and third cohorts are in play and they, not the companies, not the stars, if you want to get all Shakespearean, are at fault in this sell-off.
Think of it like this. If you are a mutual fund that is overweighted in tech and the Nasdaq was up 16%, what the heck are you doing just letting it ride. When I was up that much I would shut down and go watch the movies. We would see the Fugitive endlessly. Can't get in trouble watching the Fugitive. I didn't kill my wife! The sellers don't care.
So these mutual fund managers are pre-disposed to taking profits.They aren't even that interested in what they sell. If they are up more than 35% they are being reckless if they DON'T sell. You can't defend against that.
Then there's the third cohort, the group that is ETF and algorithmic. Let's think about FANG for a second. There are 10 ETFs that have a whole lot of FANG. Let's say that any one of these companies gets called down to the Capitol for a first-class pantsing - too fancy a term for Philadelphia? You know what you have? You've got a Musketeer thing going on, all for one and one for all. You send down Facebook because the company has become persona non grata, you take down all of FANG and the FANG ETFs that go with it. In the meantime you are also getting some fellow travelers who smell blood in the water, this is the USS Indianapolis of sell-offs and you need Quint to understand the consequences although, of course you want to be Richard Dreyfuss or Roy Scheider when this is over because you don't want to be eaten alive.
Which brings me full circle to the S&P 500 cohort. The buyers of index funds are almost by rote, they come in on down days and they come in on up days. They, plus corporate buybacks, can stabilize a lot of stocks. They are stabilizing the packaged goods stocks and some of the industrials which aren't in algorithmic hands and don't have big gains that need to be protected.
So those stocks do better even as they aren't really giving many money managers what they want. But big-cap tech is not known for having good defenses: spartan buybacks at best and a rare dividend or two.
How does this madness end? I have said time and again that it takes time and price, time for the weaker cohorts to stop getting pounded - the end of the trap games - and price where new buyers come in.
It can happen.
Consider Workday (WDAY) .
Two nights ago Workday reported a ridiculously good quarter, I mean one that any company would be incredibly proud of. There were more metrics that grew 30% than just about any company that's reported.
It wasn't enough. The stock got pulverized. It basically gave up, to use football terminology, a big lead and today it managed to stabilize.
It's a good template for what can happen.
Now what bounces first, what else is like Workday? It's going to be those with lower relative valuations, companies like Microsoft (MSFT) and Cisco (CSCO) , the latter with a good dividend and a super buyback.
Next will be the cloud kings like Workday. I suspect Alphabet (GOOGL) , if it can keep its head down, will find a bottom and Amazon (AMZN) is the one that is most likely to bounce hardest, absent a tweet blasting it from the president. Netflix (NFLX) ? It's already rallying.
Facebook, Twitter (TWTR) and Micron will be busy plumbing the depths of a bottom the whole time because actual numbers may be too high for them. I mean think about it, Micron sells at four times next year's earnings. What does that tell you?
That there is no way it can make the numbers.
Of course if you want to be a spectator and not a gladiator I see rallies in health care that seem sustainable. Retail remains a place to be. Starbucks (SBUX) , with the opening of its Milan roastery seems to have bottomed. I suspect the fintechs will keep working, especially judging by the strength in that other Jack Dorsey company, Square (SQ) .
Look, tech's defenseless, it's getting toasted; it's basically the wrong bird tonight, a Falcon, instead of an Eagle.
(Facebook, Comcast, Microsoft, Alphabet and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells FB, CMCSA, MSFT, GOOGL or AMZN? Learn more now.)