MorningWord 1/16/15: What’s Changed? – AMZN, GOOG, TWTR

by Dan January 16, 2015 9:34 am • Commentary

Yesterday I got a question from a trader on Twitter that I thought I would share, and expand on my answer.


So TWTR was above $40 Wednesday and below $37 a day later. What gives? It’s fairly simple. Aside from a few internet stocks (EXPE, FB, LNKD & YHOO) the sector is in a bear market or very close:

Down from the 52 week highs:

AMZN -30%

BABA -20%

EBAY -11%

GOOGL -19%

NFLX -35%

P -62%

PCLN -28%

TWTR -45%

Z -42%

YELP -50%

And to answer Jared’s final question, nothing’s changed since yesterday. Internet stocks are in a bear market until proven otherwise and they will continue in their downtrends most likely until there is some sort of capitulation  I suspect rather than trying to play for a bounce in the unloved, it could make sense to look for the outliers like EXPE, FB, LNKD and YHOO to join their brethren in the shitter.

Those who started trading a few years back and got through the financial crisis of 2008/2009 may feel they’ve earned their stripes. And that’s true on having experience of a financial contagion crash that was unlike anything we’d seen in years. But unless they survived the three dismal years after the dot-com crash in the early aughts, they don’t really know what a protracted bear market feels like.  The chart of YHOO from the top in 2000 to the start of 2003 should be something you never want to see in a once loved market leader:

YHOO 1999 through end of 2002 from Bloomberg
YHOO 1999 through end of 2002 from Bloomberg

The 2000 crash was one thing. Tremendous excess was met with a massive overshoot the other way, from $100 near the highs to $15, but it was the 2001 decline from $15 to close at $9 that scarred many of that (my) trading generation.  The endless streak of lower lows seemed to have no end.

I am not saying this is coming for your favorite large cap tech leaders, but the pattern has already started out to some degree in recent tech bubbles like 3d printing, internet security and some on the line services:

3D Systems (DDD):

DDD 2yr chart from Bloomberg
DDD 2yr chart from Bloomberg

FireEye (FEYE):

FEYE 2yr chart from Bloomberg
FEYE 2yr chart from Bloomberg

Pandora (P):

Pandora 2yr chart from Bloomberg
Pandora 2yr chart from Bloomberg

Obviously these charts are shorter time frames, but that’s because I want to highlight the pattern. Just because something was once loved, doesn’t mean after it get’s washed out it springs back to life. That’s what we saw in 08/09, but in bear markets it takes a long time if ever.

I recently initiated a long position in TWTR, So I do think it’s got that bounce potential. But I wouldn’t be shocked if it doesn’t and will keep on a short leash. If this recent sell-off is the beginning of the end of this bull market, some of these stocks will be in the penalty box for longer that you think. I’m not saying that’s what’s going to happen, as I mentioned the other day, it’s entirely possible that we see that last f-u parabolic move in the markets before everything is said and done. But when the party stops, I think it could be alot more like ’00-’03 afterwards than ’09-’14.