There is no shortage of high valuation stocks that got trounced in the first five months of the year that have coming roaring back recently. I would have bet one of my cats that some that had declined 30, 40, or even 50% from the all time highs would take years or possibly never get back to what felt like bubble highs.
Netflix (NFLX) is one that astounds me. After a 35% peak to trough decline from its early March all time highs, the stock has risen nearly 50% from the early May intra-day low, and now sits within earshot of the prior highs. Put another way, this stock lost almost $10 billion in market cap in 2 months and has almost regained it all back, in a period when the S&P500 sold off 2% and has since rallied 6% from the lows. For those who have been in the business for longer than the current bull market cycle, that is truly bizarre action:
While NFLX was one of the hardest hit and quickest to come back there are other hard hit sectors like cloud software and 3D stocks that have just started to get up off of the mat. Yesterday, CRM had one of its largest single day gains in a very long time, up nearly 6%, on what appeared to be no news. This is a stock that I have a bearish put position in (read here) for Aug expiration that I will have to pull the plug on soon to avoid a total loss if the stock looks like it’s about to pull a NFLX.
I got a question on Twitter yesterday whether I thought the stock was forming the right shoulder of a head and shoulders formation and frankly I have no clue. It will surely look that way if the stock fails here, but with the stock taking out the downtrend, and its 200 day moving average already, it could have been the nail in the coffin for the near term trade:
And lastly, 3D stocks. We have written about them lately (MorningWord 06/11/14: DDD Could Use A Little Support) but here I want to look at the smallest market cap names in the space, XONE and VJET. Both are just starting to make moves off of a very depressed level. These stocks are not interesting to me for their fundamentals, but if DDD and SSYS were to make a sort of NFLX or later stage CRM move I would guess that some late to the game traders would go after small names like XONE and VJET which could easily be considered takeover bait with sub $500 million market caps and high short interest potentially fueling a short squeeze.
The market suddenly seems bat shit crazy, at least from an m&a standpoint, and what appears to be a bubble in complacency.
The one year chart of XONE shows the 60% decline from the all time highs made last August and what could be a launching pad if a short squeeze started:
And then there is VJET. The stock went public last October, selling 7.5 million shares at $13. It rose to $70 by mid November only to come crashing down. And ultimately did a secondary offering of 3.5 million at $15 a share this past April prior to breaking its IPO price. WOW, talk about a round trip for a company that is only expected to have $18 million in sales in 2014. What a joke. But this stock could be a coiled spring if we are about to go back into bizarro trading again and could easily be back at $20:
Currently I have no interest in trying to pick a top in NFLX, I had a great trade short post earnings in April, but then got my doors blown off trying to fade the initial bounce of its lows. On CRM, I have to keep my bearish view on a very short leash as yesterday’s price action was powerful. And lastly, those little 3d stocks coming back from the dead are very speculative and options in the stocks are expensive, ill-liquid and have wide bid/asks. But back in day when I ran a large long short equity book, I would likely put a little position in each to play for a broadening out of the current rally.