It was a little too easy to be true, wasn't it? I am talking about the endless, non-stop run by some technology stocks that aid and abet enterprises to move to the cloud.
These stocks, along with companies that specialize in streaming content have been the big winners for several weeks now, ever since Nvidia (NVDA) and Splunk (SPLK) reported good quarters.
How does a selloff like this happen? How comes it is so relentless?
A bunch of reasons.
First, it's the beginning of a new month and very often you have large funds take something off the table. Given that no one is expecting this kind of selling - witness that the clueless pajama traders, the clowns who trade based on false tells and meaningless clues - it is hard to find the other side of the trade. There are so many ETFs that contain these stocks that it is possible for one or two of them to bring down them all. It happens, it's silly as they are often barely connected but we have seen this phenomenon since April of 2014. You have to be careful because that one produced a real hammering for the group led by Salesforce.com (CRM) with a stock that fell from $67 to $47. Careful, as Salesforce reports tomorrow, and I would say with the stock down four that the set-up is not good. In the old day I would say this stock is being de-risked. Now I say it looks like it could be rolling over even as I like it very much. I say that because there have been four declines since 2014 and not one ended in a day. They were multi-day moves and they tended to happen around the corner. If I were a trading person - I am not - it probably make sense to lighten up. We, on the other hand want to get bigger having seen so much good two week ago at Dreamforce, the once a year extravaganza CEO Marc Benioff puts on with 171,000 people in attendance. It is a Salesforce world and welcome to it.
Remember it isn't that the selling is heavy, it is the buying is light. Consider ETF selling like machine gun selling with buying being a single shot rifle. You simply don't stand a chance until the machine guns run out of ammo. They tend not to until two or three days go by to where the stocks aren't worth selling because they have gotten too low.
Second catalyst? Roku (ROKU) . Here's a company that has been the face of the cord cutters. It represents the new way to be able watch TV in a stream, like Disney (DIS) Plus. It's been downgraded many times and been grazed but not knocked down. This time though, Morgan Stanley took it to a sell, calling it an unsustainable rally and it resonated. When a stock that has withstood endless assault gets pulverized by a sell recommendation that's a sign of over extension. Some traders believe this one is the key to the era. So they believe that it's worth noting and acting on by selling it and its accoutrements.
Typically these stocks do not react to trade news as so many are immune to Chinese buying. However today they are suffering from what was a belief that we could have a Phase One deal that might have opened up China to them in some way, shape or form. When the Chinese proposed that there has to be rollbacks of tariffs as a precursor to serious talks that was seen as a signal that they don't want a deal. I think they believe there is a combination of a condemnation by Trump over Hong Kong's right to be a democracy, coupled with the impeachment, and that makes it worth walking away.
My understanding that until the Hong Kong freedom gambit there was to be a deal to stave off the December tariffs. But roll back? I don't think so, not when the president increases steel tariffs on Argentina and Brazil, ostensibly because of currency weakness but also because the Chinese have been known to use any country to get steel into America, including those in South America.
Once again, I think the Chinese are making a mistake. No Republicans have broken ranks with the leadership in the Senate which makes it almost impossible that there be a conviction which is all that really matters.
Of course once China's in play we have the usual tech subjects selling off. Nvidia needs the Mellanox (MLNX) deal to close to raise numbers. Apple (AAPL) needs China to go smoothly so it can stay selling in that market. And the fintechs that are so hopeful about getting into China, at least as far as PayPal (PYPL) has gotten already, get knocked down, too.
Any while it is not tech, Boeing (BA) seems to become part and parcel with trade and as we get closer to the end of the year there will be plenty of people speculating on how the heck Boeing will make good on all the payments the airlines are asking. The stock does appear about to roll over.
My advice? These selling squalls cannot be turned around in a day. I believe that the knee jerk sellers who are locking in gains most likely have too many to finish in one day. The pattern of Salesforce and all the cloud kings is to go down at least three days if not longer. The next Chinese riposte will most likely be an angry president who says that, once again, the Chinese agreed to an ag buy - they really haven't - and that they can't be trusted and the December 15 tariffs are going to pay for themselves and then some.
The complacency right now can be cut with a pen knife. I can't believe how once we are through the often always tough month of December investors seem to think there's nothing else to sell for. We don't have an errant Fed doing the wrong thing. We were on the cusp of a trade deal. We had good quarters like that of Splunk that reversed an entire group.
It's a too true to be good moment. We need a shakeout. We need some people to instill some fear and worry. We need stories and leaks from the Fed that Powell might tighten. We need rumors that Trump's going to raise tariffs to 30% or walk away entirely.
That should get the market where it has to go.
And I bet it gets there.
(Nvidia, Salesforce, Disney and Apple are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
