MorningWord 11/13/13: Been a lot of bubble talk of late, obviously the stock market and the effects of QE have been at the forefront, but in a week that saw the most paid for a painting at auction (here) and continued rumblings of 10% gains month of month in places like London, it has hard not to take note of the chatter. I for one see few comparisons between stock bubbles past and the current market we have in front of us, but there are clearly pockets of over exuberance as I wrote about last week in this space (MorningWord 11/4/13: There Is A Bubble Forming In Calling A Stock Market Bubble $SPY, $TWTR).
If the market corrects from here it will likely have more to do with rates and Taper fears than a bubble bursting in equities due to valuation/speculation. By most accounts the broad market appears to be at fair value by many metrics. On the other hand, just as “Bubble Spotting” makes for catchy headlines, there also seems to be an equal amount for complacency out there by the big money. This story from Business Insider the other day caught my eye as others with a similar tone have over the last week as many Wall Street Strategist have been going out of there way to tell us why it is different this time.
From where I am sitting, I see one fairly obvious situation that could cause a “Bull Market Correction” and quickly. The continued loss of momentum from the tech leadership that has captured so much investor attention for the better part of 2013. If there is a bubble anywhere it lies in the valuations, speculation and price action in a few dozen stocks with the poster-boys being TSLA, NFLX, LNKD & TWTR. These 4 companies have an avg market cap of about $21.5 billion, so a total of about $87 billion with what should amount to to about $8.7 billion in total sales in 2013. So to me the loss of momentum and the potential (or continued) breakdown by some of the stocks poses risk in my opinion to spreading to other areas like some industrials that have been trading like Net stocks of late (BA & FDX).
On Friday I highlighted what looked to be a similar technical set up in FB to TSLA’s head and shoulders (Chart of the Day: Heads Rolled This Week – $FB vs $TSLA) but there are other stocks approaching key technical support that I think Traders should keep a close eye on, LNKD for one. The one year chart below shows the stocks inability to stabilize once it broke below its 50 day moving avg and now is quickly approaching what will be a very important test of key support at the breakout level from the summer which also happens to correspond with the all important 200 day moving avg, which it has not closed below for a year.
Especially with momentum stocks like LNKD, just like they don’t usually give you a chance to get in on the way up, they oftentimes don’t give you a chance to get out on the way down. The stock’s selloff has been quite orderly so far, but the situation could get messy pretty quick if the stock breaks that all-important $200 support level. And my real fear is that this sort of price action starts to snowball and then spread. And that’s how you get the BULL MARKET CORRECTION that many think would be nearly impossible at this stage of the game. I think it is fair to say that it might have started in quite possibly the most sensitive place that it could have, TSLA, down 30% from the highs.