We are all struggling to figure out when this rout ends. When do buyers come in? When do sellers finish?
We don't know and that's how we can have this roving bear market that is so powerful and, yes, breathtaking in its nature.
Today it's software, the web, the cloud, telecommunications and social media. It's almost as if there is a giant unwind going on because of so many different reasons. But let's list them:
1. The Wall Street Journal's story on Apple (AAPL) is that all of its products, not just the low end, are slowing. The stories, to me, are repetitive but nobody seems to care and each time they seem revelatory. The only thing we haven't seen are downgrades. I have said this market can't stabilize until Apple stabilizes. Now we have the chartists saying it is all over but the shouting. It does not help that Vice President Mike Pence laid down the gauntlet against the Chinese, with the PRC the most important growth market. Apple is not going to deny the reports and if they do, there will just be another set of reports and cancellations and delayed orders. I view Apple as a long-term hold, with the installed base being the best reason to own it. However, I can't blame any of the big accounts for blowing it out.
2. Facebook (FB) is just an unmitigated disaster when it comes to management. I actually said the stock would trade higher if Sheryl Sandberg left, which is rather amazing given that there was a time that if she, the most important COO in the country, were to leave, the stock would be down ten. Mark Zuckerberg, the CEO, is now making Tesla's (TSLA) Elon Musk look like an ambassador of good will. The articles ooze a feel of the Nixon White House with a real every man or woman for him or herself. I had been calling for some sort of senior statesman to come in, not unlike when Eric Schmidt who came to Alphabet/Google (GOOGL) in 2001 and did some very heavy lifting to make sure Google got on better footing. That's what Facebook needs badly now. Of course the stock is toxic as long as this goes on, the real issues being we don't what "this" really is. I want very much to recommend it but there just doesn't seem to be a reason to get in front of a freight train. I know the stock is cheap but it's kind of a "so what" issue.
3. All of software is headed down and the move is based on, well, nothing other than perhaps a sense that the world is slowing and slowing rather fast. Plus there is such a general revulsion toward expensive stocks and these stocks are not cheap. This moment reminds me of the winter of 2016 slide where Salesforce (CRM) fell from $81 to $53 on pretty much nothing. All of this move is being abetted by ETFs that are pressing these stocks down with reckless abandon. How does it end? Frankly it usually ends when the longs are finished selling and the valuations can be sustained. That's not here, for certain. The incredible thing is that there is no concrete evidence whatsoever that anything is really wrong. Nobody has seen a real slowdown in the web. If anything adoption continues apace with the last few quarters and any companies tangentially related to the web being quite strong. But you try to tell that to the sellers who fear that this could be like 2016 or worse because the selling is less discriminate.
4. For the first time since 2008 dip buying has failed. That's right -- every time since the bottom it has paid to buy the high flier stocks on the dip. It's been the most reliable way to make money. No more. Now it seems disastrous. Just think about people who bought the myriad dips in Nvidia (NVDA) from $280 to $148. Or Micron (MU) from $64 to $36. Or Western Digital (WDC) from $106 to $45. Or NXPI (NXPI) from $125 to $82. The Nasdaq is littered with these breakdowns. The presumption is 2019 will be a down year. How can you rebut it? I have no real comeback from the theory that dip buying is dead. It has worked so often. But we have no clarity for 2019.
5. It's hard to have a good trading partner when you are trying to get that trading partner to virtually have a regime change. That's what Pence laid out this weekend, a direct challenge to the PRC's attempts at worldwide hegemony. If your goal is starve the PRC from having the money to continue its attempts to grow in power, the best way to do it is to cut off all trade with them. That, of course, would be horrendous for U.S. companies of all sorts. But many think that's where we are headed. I think that's extreme. However, you go tell that to the sellers.
6. The Fed's caught. I think the recent data still shows employment as too hot for them and they need to see a definitive uptick in unemployment to stop tightening. I doubt that can happen by December as the economy is still humming but after the holidays I think that retail will be pretty weak and there are some more bankruptcies of a larger order than David's Bridal which just filed for Chapter 11. It is a shame that we have to wait until they have such hard core info but they are not relying on the markets for anything and they seem to not care at all about housing's decline as an issue. They want concrete evidence of people being thrown out of work. I think that's terrible and not the way to run things but I am not in charge.
7. Only a very few stocks are working and those are really stocks that you buy when you have a recession on your hands. Given that nobody thinks you can have a recession so fast after such strong economic numbers there is genuine confusion. And confusion means sell.
8. Technically we are in hideous shape and it is incredibly difficult to find any level of support of consequence. I am not a technician but like pornography I know ugly when I see it.
9. While the fear is palpable there are still plenty of people saying that things are good, that employment is strong and we can handle any number of rate hikes. I think these people are dreamers. Stocks speak to me and when you look at some very good retailers that are being shelled after they report great numbers, retailers like Macy's (M) or Home Depot (HD) or Walmart (WMT) , it says that you should take heed. That's not a good sign.
10. We aren't oversold. Despite the awful action we are not at the point where we should expect a bounce. It's just not low enough. It's just not deep enough. It's just not sad enough. There's too much hope. The good news? At this pace it won't be long before all hope is extinguished.
So that's what I am seeing. I don't see a way around it until we can get these 10 problems fixed. We have been highlighting these problems for what seems like ages. Now they have only grown more acute. And there seems to be no antidote save price, lower price that is.
