MorningWord 10/8/13: Yesterday’s weakness in U.S. equities was fairly orderly for most of the day, and in some ways a tad predictable, until the last hour. At 2pm it looked as if the SPX was building steam to make an attempt to go green on the day, but at 3pm it turned tail and dropped a half a percent, closing a shade off of the morning lows. The weakness was broad based, and there were few places to hide, but it is important to note that the index is still only down about 3% from the all time highs made late last month, and from an intermediate trading perspective the set up is fairly treacherous. Some sort of joint compromise to government shutdown and the debt ceiling could have the index right back up to previous highs, while a continuation of the rhetoric could likely see a bit of a crescendo into next week’s first real deadline on the ceiling. Your guess is as good as mine how this thing plays out, but one thing is for sure, the increased volatility in single names as we head into earnings season is very likely to result in trading opportunities.
One sector that caught my eye yesterday, where the weakness did not appear to be orderly at all was the Web 2.0 stocks. While many of the stocks have a Beta to the SPX of far better than 1, the damage that was down on a down less than 1% day in many of the names was far far worse.
Yesterday’s Web Carnage manifested itself in 2 tiers, the first being what I would call the crap: GRPN -3.67%, P – 4.40%, YELP -4.49%, Z – 2.44%, TRLA -4.32%, and the second being the less new, high quality and proven but EXPENSIVE: AMZN -2.82%, LNKD -3.18% and NFLX -2.78%. Anyway you slice it, the stocks acted very poorly, and the only one that showed any relative strength was FB down only 1%.
This relative under-performance on a down day by one of the most speculative sectors in the market is important because it is a decent guide for investor sentiment, or at least, a decent gauge for risk appetite. An acceleration in selling in this sector could at the very least cause headline risk that could have reverberations to other sectors in a more sustained broad market sell off. Of course this entire conversation excludes anything having to do with TSLA, that one is GOLD!