The market is not built for what happened yesterday. It can't handle endless amounts of selling from who knows where, like the kind of selling that felled Adobe (ADBE) or VMWare (VMW) , because it simply never ceased, no matter what.
Nor can it handle the kind of buying that took Target (TGT) , up so big despite that weak guidance, or has Clorox (CLX) jumping to 26 times earnings. How can the latter be worth more on 2019 earnings than Action Alerts PLUS charity portfolio name Alphabet (GOOGL) ? Explain that to me. I can't fathom it.
I find it absolutely breathtaking to watch these moves, knowing that there seems to be nothing underneath or nothing above.
Does it really take a stock like that of Clorox to move up $3 before there is supply that caps the move? Can Adobe really go down $10 before a real buyer is found? Or are the ETFs driving things? Honestly, who bought Adobe higher up who wouldn't want to buy down here? There's nothing wrong with Adobe, other than it was valued at a high price. Now it is valued at a lower price, isn't that at all enticing?
The amazing thing about this tech selloff is that I figured it wouldn't occur until after the New Year. I didn't expect there would be such a cash call on the entire group.
But let's give the buyers their due. Solid selling season -- the best holiday period in four years according to PVH Corp. (PVH) CEO Manny Chirico -- has made it so the retail estimates can't hurt you and Congress made it so the numbers will be going up anyway.
But let's consider what could be hurting tech.
One, is that people are extrapolating the weaker numbers at Autodesk (ADSK) -- the only tech that really blew up -- and saying that the whole cloud must be slowing. I think the problems with Autodesk are company-specific, but I know at times like this, that bit of logic doesn't matter.
There are also plenty of people who think that Workday (WDAY) had a weak quarter. I didn't think so, and I thought the guidance was fine. I get, though, that it wasn't blow-out. It's just that every time it isn't blow out, the stock sells down, and then, over time, works its way to a new high -- not unlike ServiceNow (NOW) or Salesforce.com (CRM) .
But there are real issues when it comes to semiconductor equipment and commodity parts like disk drives, DRAMS and flash, and these truly do have a lot of people worried.
First, disc drives deservedly have rolled over. There's excess inventory at some levels. Seagate (STX) and Western Digital (WDC) told us that.
But this tech downturn accelerated when Morgan Stanley's Katy Huberty lowered the boom on flash pricing, saying it could be down as much as 30% in 2018. That call has caused a non-stop decline in all of the capital equipment companies, like Lam Research LRCX, which has now fallen 40 points in pretty much a straight line. Western Digital's stock has gone from $92 to $77, where it sells at five times earnings. FIVE!
Micron Technology's MU stock is down ten points to $39 and it, too, sells at five times earnings. Remember, while Micron sells a lot of DRAMs, it sells a ton of flash, too.
The problem is that a stock that's breaking down that sells at five times earnings may not pick up new adherents at four times earnings, because it will turn out those earnings won't be there.
And a stock like that of VMWare, which reported a perfectly respectable quarter, was down another $10 yesterday, which is just brutal. Who knows what's the right price for that one?
I think that's the real struggle. Who knows what is the right price? We have heard endlessly that these stocks are too expensive. What are we supposed to do with them?
I feel the same way with Nvidia (NVDA) . I think it is a great stock and a great company. But I have no idea what is the right price to pay.
So, what do you do? I think you wait until you see the plain vanilla S&P names level off, and let that be your tell to pick up some of the techs that have fallen so hard because they are a nasty source of funds.
That might happen as soon as today. Until then, though, recognize that the group has fallen out of favor and that with the exception of flash, in my estimation, it doesn't deserve to be.
